How riders add value to your life insurance plan

By: | Updated: October 30, 2018 7:25 AM

The basic objective of buying life insurance is to provide maximum financial security to the dependants in case of untimely death of the policyholder.

However, there are provisions for providing different benefits in different circumstances, which the policyholder may not even foresee at the time of signing a proposal for taking a life insurance policy.

The basic objective of buying life insurance is to provide maximum financial security to the dependants in case of untimely death of the policyholder. In almost all the cases the basic sum assured and accrued bonus till the time of death determines the final payout to the nominee. However, there are provisions for providing different benefits in different circumstances, which the policyholder may not even foresee at the time of signing a proposal for taking a life insurance policy.

It is a common practice worldwide for life insurers to provide add-on benefits under the same policy on payment of a small additional premium. For example, almost every company offers double accident benefit. This benefit can be secured by payment of additional premium as low as rupee one per thousand sum assured.

Rider benefits

Under this rider benefit, in case of death by accident a sum equal to the basic sum assured is paid to the nominee over and above the sum assured under the policy. The additional sum under this rider is meant to provide additional funds to help the family. The worst would be that the policyholder, the victim of the accident, is permanently incapacitated and is unable to earn any longer.

The accident benefit rider comes to the rescue of the family by providing monthly or yearly financial support which may be of some help to the affected family.  In certain cases, riders provide for premium waiver benefit.

There is a similar rider available under child policies under which if the proposer, generally one of the parents, dies prematurely during the tenure of the child’s policy, the subsequent premium is fully waived and the policy remains in  force with all the assured benefits for the child. All these benefits come at a very low cost and must be purchased as rider with the basic policy.

Term rider

Term rider is yet another very significant value addition to a policy. This is taken with the endowment policy to enhance the risk cover to the extent of 200-300% of the basic sum assured. The premium paid for the term rider is a small sum. During the entire tenure of the policy the risk cover remains higher and this takes care of the objective of having enough provision for financial protection in case the policyholder dies during the term of the endowment policy.

Life insurers are providing another valuable rider known as critical illness rider.
Critical illnesses cause serious strain on the finances of the policyholder and this
may mean not being able to pay life insurance premium and the policyholder may have to borrow money to meet the high cost of treatment.

The critical illness rider defines certain health situations and diseases under which the insurer pays a lump sum amount which is generally equal to the sum assured to enable him to meet all expenses. Generally, on the conclusive diagnosis of one of those critical diseases, the insurers make such payment. While purchasing a policy the buyer must ask for relevant information from the insurer’s representative and add this rider to his/her policy.

Accelerated maturity payout

Under the accelerated maturity payout rider, a part of the sum assured is payable three to five years before the date of maturity if the policyholder suffers from terminal illness. The insurers do not wait for paying the sum assured till the death of the policyholder. However this benefit is not made available by most of the Indian insurers. This rider is popular in developed countries where life expectancy is very high. The rider benefit steps in to financially support such policyholders during the last few years of their lives.

Insurers also sell annuity policies where a constant amount is guaranteed during the lifetime on payment of a lump sum amount. However, those who survive too long may need more funds for long term care. Policies in developed countries provide for riders under annuity policies for long-term care benefits. The fast emerging socio-economic profile of the citizens in India would also require such riders to be offered to the policyholders and the annuitants.

The policyholders who add rider benefit to their chosen plan ensure higher financial protection for themselves and their family through a single policy than those who either do not know or who are not suitably informed by agents about riders. Riders
are available at low cost and add tremendous value to a policyholder’s financial planning providing security to himself and
his family.

The writer is former MD & CEO, Star Union Dai-ichi Life Insurance

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