A rider or endorsement of your policy will usually result in a premium change. Riders allow you to modify the insurance policy to fit your coverage needs better.
Riders are essentially additional benefits added to an insurance policy that often require an additional premium payment. In this way, riders can customize an insurance policy to address specific needs or concerns.
Types of Insurance Riders
Riders can be classified into two categories
- Policy Riders
- Benefit Riders
Policy Riders
Policy riders are provisions that give additional benefits that supplement the primary use of the sum assured. These are
Days of Grace Rider
It is a standard clause in nearly all policies, where the policyholder is allowed a certain grace period to pay the premium after the due date. During this period, the policy doesn’t lapse, nor is interest payment demanded.
Revival of Policy Rider
The policy lapses if the renewal premiums under life insurance policies are not paid in time and within the grace period allowed. However, per the provision, many policies will enable the revival by paying an outstanding premium with interest and, in some cases, with the medical test.
Non-Forfeiture Rider
This is a privilege to the life assured in case all the premiums are not paid, but the policy has acquired a surrender value.
Benefit Riders
These are provisions the policyholder may agree to insert in the base policy, giving extra sum assurance or expanding the scope of the policy benefits, which otherwise are not available under the general provision of the policy, and it comes with payment of an enhanced premium.
Some of the standard Benefit Riders are:
- Level Term Cover Rider
- Critical Illness Rider
- Accident & Disability Benefit Rider
- Income Benefit Rider
- Waiver of Premium Rider (WOP)
- Major Surgical Assistance Benefit Rider
- Guaranteed Insurability Option Rider
Level Term Cover Rider
This provides the option to increase risk cover for a limited period and up to a maximum of the sum assured on a base policy. It offers death benefit alone and addresses a need for extra protection for a specified period, such as when one may be carrying large debt and wish to insulate dependents from financial liability in the event of death. Further, it is a plan that offers pure risk cover at the least cost.
Example: Amrit needs a life insurance cover of Rs 50 lakhs, whereas the actual need for life insurance is Rs 25 lakhs, and an additional insurance cover of Rs 25 lakhs is required to cover some debt for a limited period of one or two years. If he takes a life insurance policy for a sum of Rs 50 Lakhs, he would have to pay a certain premium. Instead, he takes a life insurance cover of Rs 25 Lakhs and adds a term rider for Rs 25 lakhs; the insurance premium could be lower than paid on Rs 50 lakhs without any rider. Adding a term rider can fulfill the need for life insurance at a lower premium.
Critical Illness Benefit Rider
A critical illness benefit rider is taken with a life insurance policy; it provides additional cover for the risk of contracting a “critical illness.” In most cases, the extra cover is equal to or 50% of the sum assured on the base policy. The insurance amount is paid in lumpsum or defined percentages upon diagnosis of the illness.
The illnesses covered and the premiums vary among insurers, but most insurers cover cancer, coronary artery bypass, heart attack, kidney/renal failure, major organ transplant, and paralytic stroke. Before deciding, check the list of illnesses covered and the exclusions. Also, a few insurers terminate the base policy once a claim is made on the rider. Therefore, a plan that continues to give life cover, even if it means a marginally higher premium on the rider, is always preferred.
Accident & Disability Benefit Rider
This rider provides for the additional benefit if the death or disability occurs due to an accident. It is a very common and essential rider,
- Benefits payable on death due to an accident.
- Benefits are payable in case of permanent or partial disability due to an accident. A disability could be of the following types:-
- Permanent Total Disability
- Permanent Partial Disability
- Temporary Total Disability
- Temporary Partial Disability
Waiver of Premium Rider
This essential rider is mainly attached to the children’s plans. On total and permanent disability due to an accident or death of the insured, all future premiums for both the base policy and rider(s) are waived till the end of the term of the rider or death of the life assured. This rider becomes helpful when the person responsible for paying the premium is not there to contribute, and the benefit doesn’t get hampered.
Major Surgical Benefit Rider
When added to a life insurance policy, this rider provides financial support in the event of medical emergencies requiring surgery. When this clause gets activated, a part of the sum assured is paid to the policyholder.
Before signing up, check the list of surgical procedures covered and the exclusions. For example, most insurers exclude claims arising from pre-existing injuries or illnesses and other predefined specific events. Also, remember that expenses on hospitalization for ailments that do not require surgery are not covered.
The premium for this rider can vary drastically because of different ailments and because only some insurers allow the base policy to continue once a claim is made on the rider.
Guaranteed Insurability Rider
This rider “ensures the insurability” in the future. It gives the right to purchase additional insurance at different stages without a further medical examination. This rider is helpful if one will need to buy additional insurance to keep pace with changing life circumstances, like when one gets married or have children. Moreover, even though the health condition may deteriorate with age, the insured must undergo any medical evidence of insurability.
Bottomline: Riders Enhance Insurance Policy Benefits and Reduce Cost
Insurance Riders are an impeccable way to increase insurance coverage without taking on a new policy. They provide extra coverage under term insurance, which can be a very crucial help in times of need. Buying a rider is much more affordable than purchasing a separate insurance policy. And since you can choose what riders you want, it is more cost-effective. According to the prevailing tax rules, tax benefits could also be availed on insurance riders, just like on the primary insurance policy.
