Riders to an insurance policy are similar to the toppings which you have on your pizza. The way toppings on a pizza make your food delicious similarly riders provide ‘add-on’ benefits—that can be purchased with the basic life insurance policy. A rider is an ‘additional benefit’ which enables a policyholder of life insurance to secure for himself an additional cover of his choice along with the main policy.
Riders are optional benefits that can be combined with the main insurance policy based on one’s preferences at an additional cost. Riders cover risks that are beyond the scope of the main life policy, resulting in a more comprehensive protection. Insurance companies provide various types of riders which a policyholder can choose according to his requirements. Since these riders come at an additional cost, the policyholder should carefully evaluate the benefits while taking on these add-ons benefits.
Below is the list of riders:
Term rider: In case of endowment or money back policy, it is better to buy a term rider and increase the value of cover. A term rider provides additional pure life insurance cover with your basic insurance policy, which typically would be an investment-cum-insurance plan.
Waiver of premium rider: If the policyholder dies in an unfortunate event, future premiums on the basic policy are waived. The waiver-of-premium rider allows you to stop paying premiums in the event that you are disabled. These are generally available with children insurance policies, which provides for a premium waiver in case of the parent’s death.
Return of premium rider: These riders are usually provided with term policies, where at the end of the term plan if the policyholder survives, he is paid back the premium by the insurer.
Accidental death benefit rider: This rider pays additional life cover in the event of insured’s death due to accident. ADB rider benefit is for customers who need extra accidental protection with the main policy as it provides the option to enhance the risk cover against accidents for a limited period, up to a certain maximum amount as defined.
It covers the life insured against accidents that might result in death and it helps the family to meet any unforeseen expenses or liabilities on account of the accidental death of the life insured. For example: If Mr A has a basic policy which offers a sum assured of Rs. 10 lakh and has taken an accidental death benefit rider of an additional Rs. 10 lakh. In the event of death of the policy holder ‘due to an accident’ during the tenure of the policy, the nominee would get Rs. 20 lakh as the death benefit.
Disability benefit rider: Periodic benefits, as a percentage of sum assured paid in the event of disability.
Income benefit rider: In case of insured’s death, claim proceeds are paid in installments.
Critical illness rider: Lump sum or periodic benefits are paid when contracted with critical diseases. If the policyholder is diagnosed with any of the specified illnesses—as defined in the policy document— then the policyholder is paid the entire sum assured under the rider. The policy along with all the riders (to the extent of the rider sum assured) is then terminated. However, the remainder of the base policy continues till the end of the term. The policyholder will have to continue paying is premiums for the remainder of the policy.
Health care rider: Health care riders like long term care (LTC), provide periodical benefit payments for long term rehabilitation or prolonged nursing care.
Hospital income rider: This rider provides a set payment for each day the insured is hospitalized because of his disability.
It is better to add an accident benefit rider and possibly health riders like critical illness. With rising healthcare costs, critical illness and healthcare riders are essential, even if an individual has a separate medical insurance cover. Critical illness and accident benefit riders are usually preferred with protection or savings plans, while term riders are preferred with savings and pension policies. Unlike medical insurance, which usually reimburses medical expenses like hospital bills; riders come into play the moment the medical condition it is covered for is detected.
Due to a wide range of riders offered by various insurers choosing the right one can be difficult. Each insurer offers at least three variants, and agents try to get you to take as many as allowed. According to IRDA (Insurance Regulatory and Development Authority), the premium for all riders together cannot exceed 30% of the premium on the base policy. Also, the tenure of the rider and the base policy has to be same.
Tax benefits: All riders (other than health & critical illness) get benefits under Section 80C on premium contribution of up to Rs. 1 lakh. Health and critical illness riders get Section 80D benefits up to a maximum of Rs. 15,000 for individuals (less than 65 years of age), while for senior citizens (above 65 years), it is Rs. 20,000. All rider benefits when coming into effect (claims) are exempt from tax under Section 10(10D).
Should you take an accidental policy separately or as a rider?