Does Term Insurance Cover Disability?

Just like a steadfast lighthouse that guides ships safely through turbulent waters, term insurance acts as a beacon of financial security to your family in case of your untimely demise during the policy period. However, it may not comprehensively address the broader range of risks, such as disability, which can pose challenges beyond the scope of mortality. Disability can lead to problems potentially more significant than death, given the loss of income coupled with the expenses for treating the disorder.

While base term insurance plans do not inherently cover disability, there are valuable solutions available to augment your coverage. This is where riders step in to address specific risks you may face. In the context of disability, two riders stand out - the accidental disability rider and the waiver of premium in accidental death and disability rider. These riders step into financially protect you and your family in case of disability caused by unexpected accidents.

We’ll learn about these riders in detail in this article. But first, let’s understand how a term insurance plan works.

What Is Term Insurance And How Does It Work?

A term insurance plan is a straightforward and effective way to safeguard your family's financial future. In the unfortunate event of your passing during the policy's tenure, the insurance company will provide a sum of money, known as the 'sum assured,' to your family as long as you've been consistent with premium payments.

This term insurance cover serves as a financial cushion, replacing your income and ensuring that your family can sustain their lifestyle and pursue their dreams without financial strain. The payout is structured based on the claim payout option you selected when purchasing the policy. Term insurance, being a pure risk cover, doesn't offer benefits if you outlive the policy duration.

What Are Riders?

Riders, also known as add-ons, offer extra coverage that can be acquired at the time of policy purchase by paying an additional premium. These riders enable you to customise your base term insurance coverage to align with your specific needs. They provide an added layer of financial protection beyond the base plan in specific circumstances. Some examples of riders include critical illness rider, hospital cash rider, surgical care rider, accidental death benefit rider, accidental disability rider, waiver of premium rider and more.

As mentioned earlier, here are the two riders that take effect if you encounter an accident leading to disablement -

👉 Accidental Disability Rider

This rider is structured to offer financial assistance in case of disability arising from an accident. In case of such an occurrence, you and your family would receive a payout to manage additional lifestyle expenses, including but not limited to physiotherapy sessions, wheelchairs, medical check-ups, and related costs.

Typically, accidental disability riders in term insurance provide a cash payout calculated as a percentage of the rider’s cover amount depending on the type and severity of the disability and the specific terms of the chosen plan. This rider also covers death occurred due to an accident, provided the death occurs within the period specified by the insurance company.

Term insurance with an accidental disability rider acts as a comprehensive shield, not only against the unpredictability of untimely passing but also against the financial challenges that may arise due to unexpected accidental disabilities.

Here’s a table showing the payout structure based on the type of disability -

Note: The terms and conditions can vary across different insurers. Generally, a maximum amount of 100% will be paid during the entire policy period of the accidental disability rider. And, the benefit under the rider will be provided only once with respect to each disability.

👉Waiver of Premium In Accidental Disability

This rider comes into effect when permanent disability results from an accident. As soon as you notify your Insurer about the permanent disability , your future premiums will be waived off, relieving you from further payments until the end of the policy term. Importantly, you will still maintain the full coverage. In the unfortunate event of your demise during the remaining policy duration, your family will receive the complete death benefit.

While this rider enhances financial security, it is important to be aware of its limitations. The waiver is applicable only for disabilities deemed permanent, and this is subject to the specific criteria set by the insurer. Additionally, there may be waiting periods, exclusions, and other limitations associated with this provision and you are advised to read your policy document completely to understand the benefits and limitations specified therein.

A Question You May Have - What Qualifies As A Disability?

The definition of disability can vary significantly from one insurance company to another. To know the exact definition of disability, you need to read the policy document thoroughly because while one company may specify permanent disability as the incapability to perform 3 out of 6 days of work activities (such as writing, climbing, lifting, etc.), another insurer may define it as an injury resulting in the loss of core function of a body part, such as the loss of both eyes, both feet or one arm and one leg.

Given these variations and exclusions, it is highly advisable to thoroughly read and understand the policy wordings of the rider before taking the plunge.

Wrapping up!

While a term insurance policy provides crucial financial protection in the event of your untimely demise, it may not cover the broader spectrum of risks associated with accidental disability. This is where the accidental disability rider and waiver of premium in accidental disability rider step in to provide financial assistance in the event of disability caused by unexpected accidents. However, it is imperative to understand the specific terms, payout options, and limitations associated with these riders, as the definition of disability and exclusions can vary among insurers.