What Is A Rider?
In this section, let us understand a common term you will come across while buying a life insurance policy: ‘Rider.’
What is a Rider?
Riders are the additional benefits provided by the life insurance companies that give extra benefit by the cost of extra premium (such as critical illness, accidental death, waiver of premium etc.)
By and large combinations of any sort come with limitations or hidden costs. This applies especially to riders offered with life insurance products.
On the positive side, riders are convenient. They expand the amount and type of cover that you can get with your main life insurance policy. The amount of additional insurance you can get via riders depends on the value of the base policy.
On the negative side, the riders get terminated once they are used or when the main policy or base policy terminates or lapses.
Explain the types of Riders.
1. Critical illness or Surgery Rider
Standalone critical illness policies cover a comprehensive list of critical diseases. They impose no restrictions on the extent of cover.
A policyholder who has this cover gets an amount equal to the sum assured if he is diagnosed as having one of the critical illnesses included in the policy contract. For a 40-year old healthy person having a cover of ₹5 lakhs, the cost of such a rider starts from ₹3,000 and can go as high as ₹9,500. In comparison, a standalone critical illness policy (cover for ₹5 lakhs for a 40-year old) starts from ₹1,500 and goes up to ₹7,500.
On the face of it, buying a rider may appear more desirable because of its lower cost. But the standalone policy covers a wider set of critical illnesses. In case of such a policy, you can also get a higher sum assured. Critical illness riders come with a lower limit on sum assured (determined by the value of the base policy). Further, their structure is rigid and there are limitations on renewal of the rider. Therefore, when you look deeper, a standalone product makes more sense despite its higher cost.
2. Accidental death or disability benefit rider
It provides a lump sum cover to the insured for death or disability due to an accident is another rider offered by many insurers. This rider pays the sum assured in case of the insured’s death or total and permanent disability due to an accident. However, the rider may not provide for loss of income due to temporary disablement, which is a risk that is more common. This is a state, which in some instances is worse than death, as it deprives you of the ability to earn.
A standalone personal accident policy from a general insurer offers more comprehensive cover. Not only does this policy cover for death due to accident, partial and total disability, it also covers temporary disability and pays out a weekly compensation of one percent of the sum assured up to a maximum of 104 weeks or two years. This is more than the size of the cover in the policy and is not restricted by the sum assured on the base policy. In the case of a standalone policy, you have the flexibility to hike your cover depending on your income, profession and age.
For instance, a fracture can prevent you from working for weeks. In such a case, this policy pays a weekly allowance that is linked to the insured’s income. Many riders do not offer this.
3. Waiver of premium rider
This is an essential part of child insurance policies. This rider waives off subsequent premiums if the insured or the earning parent dies or is disabled and is unable to continue paying the premiums. If this happens, the insurance company pays the remaining premium.
This is perhaps the only exception where a rider offers great value. This rider waives future premiums if the insured dies or is disabled and is unable to continue paying the premiums. If this happens, the insurance company pays the remaining premiums without limiting or compromising on the benefits. This is by far the most useful rider. Parents buying insurance plans to provide for their child’s financial future should certainly consider this rider.
4. Hospital cash benefit rider
It provides a pre-specified sum of cash for each day that the insured is hospitalised. The maximum number of days of hospitalisation during the entire term for which this rider is available is specified in the policy. But it comes with a number of exclusions hidden in the fine print. One may be better off creating an emergency fund that can be utilised at the time of hospitalisation.
Riders typically cover only a few critical illnesses such as stroke, heart attack, cancer, kidney failure, among others. Also, the policy guidelines restrict the premium payable (and hence the sum assured you can avail) on such a rider. This usually depends on the type of policy and its tenure.
The sum assured offered on these riders cannot exceed the value of the sum assured on the base policy.
Combining a rider with your life insurance cover offers you convenience. However, this may not be what you need. The rider may not help you when you need it most. Use the standalone approach to achieve your insurance needs without compromising on the extent of cover you get. Do not add riders to your policy just because of their low cost. Buy them only if they satisfy your insurance needs.
Premium paid on base policy (including paid for any rider) also is tax deductible on all types of policies –whole life, endowment, money back, term plan or annuities plan and ULIPs also upto the extent of ₹1,50,000/- p.a.
