Ch. 9: Term Life Insurance Riders?

When you are buying something - especially something personal, you are keen to find the perfect fit. So, you check out the benefits and features of the product to see whether it suits your needs or not. You also check for any add-ons or additional benefits available with the product. For instance, when buying a vehicle, besides the benefits and features of the model, you might also look for accessories or add-ons you can buy separately to customise it - like, a headliner, seat covers, cushions, floor mats, etc.

Term insurance, too, is a very personal purchase. After all, it will impact the quality of life your family will enjoy when you’re not around anymore. Hence, it is extremely important that you pick the right features and design the policy so that it fits your family’s preferences perfectly. Term insurance offers multiple features and benefits like increasing cover, limited pay, claim payout options, etc. - which we’ve already read about in the previous chapter. In addition to all these customizations, you can also opt for riders with your term insurance plan.

You’ll hear about riders as you get close to finishing your term insurance customizations. What are riders? How do they work? What are the various types of riders available with term insurance plans today?

Let’s find out.

What are Riders?

Riders are ready-made extensions on your base term insurance plan that you can purchase at a certain additional cost and with no extra paperwork. They are add-ons that will offer a payout under specific circumstances.

Riders in term insurance

1. Critical Illness Rider
This rider will pay a fixed amount of money if you are diagnosed with a serious illness listed in the policy document. This money can be used to cover all additional expenses you and your family will have to bear as a result of the disease. Further, the money will also act as a replacement for the income you might have lost - because of the diagnosis and treatment of the disease.
You should be super careful about the ‘type’ of critical illness rider available with the policy you’re going to purchase. Some insurers offer accelerated riders, while some offer comprehensive riders.

a. Accelerated Critical Illness Rider
If you use an accelerated rider, it will simply pay you an advance amount out of your total base cover. If you use the rider for a certain amount, your base policy cover will be reduced by that amount.

b. Comprehensive Critical Illness Rider
Unlike an accelerated rider, a comprehensive rider will not affect your base policy cover at all. It will offer a payout if you’re diagnosed with an illness mentioned in the policy and in the event of your death, your family will receive the full amount for which you bought the term insurance policy.
Let us understand both these types of critical illness riders better with the help of an example. Suppose you have a term insurance policy of Rs. 1 Crore and you purchase a critical illness rider of Rs. 10 Lakhs along with it.

If you buy an accelerated rider
you’ll be paid Rs. 10 Lakhs if you get critically ill because of a disease listed in your policy document. And, your term insurance cover will be reduced by this amount. Then, in case anything happens to you during the policy term, your family will be paid a claim of Rs. INR 90 Lakhs only.

If you buy a comprehensive rider,
instead an amount of Rs. 10 Lakhs will be paid to you if you get diagnosed with a disease listed in the policy document. And if you pass away during the duration of the policy, your family will get a term insurance claim of Rs. 1 Crore.

2. Accidental Death Benefit Rider
If you pass away because of an accident during the policy term, this rider will provide your family with an additional sum of money. You should opt for the accidental death benefit rider only if you are not able to buy sufficient term cover for your family due to eligibility restrictions. Because when you do the math, you’ll realise there is no major cost difference between the Accidental death benefit rider and a term insurance policy of the same cover amount.

3. Accidental Disability Rider
This rider will pay an additional sum of money in case you meet with an accident that leads to disability. An accidental disability could impact your ability to earn and live a regular life. In fact, a disability can cost your family even more than your death. Because there will be a loss of earnings as well as an increase in expenses - there will be additional lifestyle costs like accessible property, vehicles, making alterations across the house, etc.
Accidental disability rider can offer protection against such a financial risk. If you’re buying this rider with your term plan, you should know that not all types of disabilities are covered by the accidental disability rider. It may cover only permanent and total disability.

4. Waiver Of Premium Rider
There are two types of waiver of premium riders available with a term insurance policy.

a. Waiver of Premium on Critical Illness Rider
With this rider, all your pending term insurance premiums will be waived off if you get diagnosed with a critical disease that is mentioned in your policy document.

b. Waiver of Premium on Accidental Disability Rider
If you get disabled due to an accident, you won’t have to pay any of your future premiums if you buy this rider with your term insurance policy.

5. Surgical Care Rider
This rider will offer a lump sum benefit, i.e., a fixed sum of money in case you are hospitalised for a minimum period of 24 hours for a surgery that is medically necessary. The benefit amount that you’ll get under this rider will depend upon whether the surgery is classified as ‘major surgery’ or ‘other surgery’ in the policy document.

6. Hospital Care Rider
If you undergo hospitalisation for treatment of an illness or injury that is medically necessary, the Hospital Care Rider will pay a fixed amount of cash on a daily basis for each day you are hospitalised. To avail the benefit under this rider, you are required to be admitted to the hospital for a minimum period of 48 hours.
For instance, you undergo a 5-day hospitalisation for treating kidney disease. If you’ve opted for this rider along with your term plan, the insurer will pay a specific amount, say Rs. 5000 for 5 days each, i.e., Rs. 25000 in total.

What are the advantages of Riders?

• No documentation Beyond the documents you’ve already submitted for the base term insurance plan, you don’t need to go through paperwork or submit any additional documents to the insurance company.
• No medical tests Since the rider is a part of the base term insurance policy, you don’t need to undergo any separate medical checkups besides those you undergo at the time of taking the term insurance policy.

What are the disadvantages of Riders?

• Coverage limitations
  As per the IRDAI (Insurance Regulatory and Development Authority of India) regulations, the premiums of a rider cannot be higher than the premium of your base term insurance policy. Hence, there will be a maximum cap on the amount of rider cover you can opt for.
  
• Limited customizations
  There may not be many options available to customise the rider cover as per your and your family’s preferences.
  
• No cost difference
  There is no significant cost difference between a rider and standalone covers available for the same situation. For example, the price of a critical illness rider and a standalone critical illness insurance cover is almost the same.

How should you approach Riders?

Riders can be considered as quick hacks to buying an insurance cover for a particular risk. For instance, if you take a standalone personal accident policy instead of the accidental disability rider, it will cover all types of disabilities, unlike the rider. Similarly, if you take a separate critical illness insurance policy, it will cover even the early stage of some diseases - unlike a critical illness rider that only covers advanced stages of diseases. The only exception is the waiver of premium rider - which you may consider purchasing.

However, remember that while specialised policies are an ideal choice, most of us completely miss taking such separate covers completely. So, if you are buying a term insurance plan after months or years of delays, and want to be done with the purchase quickly, opt for a rider instead of delaying and not buying a separate comprehensive policy.