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Should you opt for additional riders in your term policy?

Riders are add-ons that provide additional cover over and above the basic life cover of your term policy. They are optional and come into force on the occurrence of a specified event.

When you buy a term insurance policy, insurers often ask if you need additional riders attached to it. Some are health-related riders while others are related to occurring of unforeseen events. 

Do you actually need them?

Let’s first of all, understand a rider.

Riders are add-ons that provide additional cover over and above the basic life cover of your term policy. They are optional and come into force on the occurrence of a specified event.

Following are the common type of riders:

Critical Illnesses (CI)

 A regular health cover might be inadequate if one contracts a critical illness. This is because treatment for critical illnesses such as cancer, heart attack, kidney failure, major organ transplant and paralytic stroke cost anywhere between Rs 5-30 lakh or much more. 

Furthermore, the health cover function on indemnity basis which means it pays expenses only in case of hospitalization. 

By buying a CI rider, one can get a lump sum amount (equal to the sum assured) on diagnosis of a critical illness which in turn could be used for treatment or replace lost income. 

Some insurers offer a piecemeal disease-specific rider (say cancer) while others provide a comprehensive single CI cover.

Accidental Death benefit rider

It is payable on death due to accidents. If the insured dies due to an accident and has purchased an accidental death cover, their family gets a claim over and above the basic sum assured. Let’s assume one takes a life cover for Rs 1 crore as well as an accidental death cover for Rs 50 lakh. In case of accidental death, their family gets a total claim of Rs 1.5 crore. If death is due to any other reason, they get only Rs 1 crore. 

Some insurers might waive future premiums for you if it is a permanent and total disability. Others might provide a part of the sum assured as income for over the next five to 10 years. It might also be called a waiver of premium rider or income benefit rider. You need to check with your insurer about the specifics. 

Accidental disability cover

Sometimes, in an accident, one suffers temporary or permanent disability. It has financial consequences, since it might affect their earning ability. By buying an Accidental Disability cover, you can financially protect your family from such events. The insured will be paid in lump sum on the occurrence of such disabilities. 

Some insurers might waive future premiums for you if it is a permanent and total disability. Others might provide a part of the sum assured as income for over the next five to 10 years. It might also be called a waiver of premium rider or income benefit rider. You need to check with your insurer about the specifics. 

Advantages

Affordability

 One of the advantages of opting for a rider in an existing term policy is that it comes at a reduced cost. For instance, a separate cancer cover for a 30-year old till the age of 60 years and for a sum assured of Rs 10 lakh entails a premium of Rs 1,115 annually. However, if he owns a basic life cover for Rs 1 crore, a similar rider works out to Rs 868 (22% discount). 

Flexibility

You can customize your rider requirements as per your needs. However, the policy tenure and the sum assured of the riders cannot exceed that of the basic policy, as per the insurance regulations.

How to choose a rider

Reduce costs

Do the math. For instance, a basic term cover for Rs 1 crore costs Rs 10,648 annually for a 30-year old till the age of 60 years. To that if one adds Rs 1 crore Accidental Death rider, annual premium goes up by 60 percent. And to that if cancer, critical illness and accident disability cover are also added, premium effectively doubles that of the original policy. As a thumb rule, don’t stretch your budget. 

Stick to essentials

 Some covers might be an overlap. So, check if some health-related riders are already part of your existing health cover. Also, find out if you really need it. If term cover is adequate, accidental death riders might not be needed. 

Read the fine print

Some insurers might terminate the basic policy on claims being triggered by any of its riders. Also, some CI riders are cheap but not comprehensive. So, check the fine print and the list of exclusions. 

Takeaway

Riders are cheaper than going for a stand-alone cover. However, it entails a cost. Go for it only if it is essential. 

 

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