Get more from your insurance policy

Life insurance products offer a lot of options nowadays. Not only can an individual cover himself for an eventuality, he also has the choice of enhancing his life cover by opting for 'riders'.

Simply put, riders are add-on benefits which can be bought along with a life insurance policy. They enable insurance seekers to increase the scope of protection offered by the insurance policy for a price.

How do riders add value to the insurance seeker and what are the options available to them? An illustration will help us better understand the same.

Rider costs: Evaluate them

As can be seen from the table, if an individual aged 30 years, decides to buy an endowment plan from ABC Company Ltd for a sum assured of Rs 500,000 with tenure of 10 years, the basic premium for the same works out to Rs 51,381. If an eventuality were to take place, the individual's nominees would get Rs 500,000.

Suppose the insurance seeker decides to opt for the 'Accidental Death Benefit (ADB)', the 'Permanent Disability benefit (PDB)' and the 'Critical Illness Benefit (CIB)' riders from ABC Company Ltd. As a result he will have to pay an additional Rs 400, Rs 200 and Rs 350 for the ADB, the PDB and the CIB riders respectively. This will be in addition to the basic premium amount.

Conversely, if he were to buy the endowment plan from XYZ Company Ltd, other parameters remaining the same, the basic premium amount would have worked out to Rs 50,445. Plus for the ADB and the CIB riders, the individual would have to fork out Rs 695 and Rs 915 respectively.

How riders work
In case of a policy from ABC Ltd, on the occurrence of a 'critical illness' during the policy tenure, an amount as proposed in the policy will be paid out to the individual. In our example, he will stand to get Rs 250,000. The sum assured on the insurance policy, after giving the said amount, will stand reduced to Rs 250,000 i.e. Rs 500,000 - Rs 250,000.

On the occurrence of a critical illness in case of a policy from XYZ Ltd, an amount equal to the sum assured (i.e. Rs 500,000) will be paid to the individual. That apart, his basic policy sum assured will remain unaffected despite the CIB payout.

This is unlike the CIB benefit in case of insurance company ABC Ltd where the sum assured was reduced to the extent of the CIB benefit. Therefore, although on the face of it, the premium paid in case of ABC Ltd is lower, the benefits in case of XYZ Ltd, for a nominal extra amount are far superior.

Also, in case of some insurance companies, it is possible for the individual to buy himself a CIB cover equivalent to his basic life cover i.e. Rs 500,000 in our example. Conversely in the case of other insurers, the CIB rider is restricted to just 50% of the basic sum assured, subject to a maximum amount. These are some of the nuances which insurance seekers must be aware of before selecting an insurance policy.

The riders can further benefit the individual in case of other unfortunate events. In the above case, suppose an eventuality occurs due to an accident, then the nominees stand to gain (in addition to the sum assured), an amount worth Rs 250,000 in case of both ABC Ltd and XYZ Ltd. This is because the insured individual had opted for the Accidental Death Benefit (ADB) rider.

Rider exclusivity
At times, certain riders are exclusive to some insurance companies; one such rider is the Permanent Disability rider. In case of a permanent disability due to an accident, the individual is covered to the tune of the amount opted while buying the policy. The payout can either be made in lumpsum or in the form of annuities.

Riders for women
Some life insurance companies have also come out with insurance plans specially designed for women. Such plans offer critical illness riders, which cover specific women-related illnesses.

Tax benefits
Riders like critical illness also give individuals, tax benefits under Section 80D. These benefits are over and above the Section 80C benefits, which life insurance premiums attract. Individuals can thus maximise their tax benefits by opting for such riders.

Subjective definition of riders
It is also important to note how the riders are defined and when do they become payable. Exclusions should also be evaluated before finalising any rider. Exclusions are circumstances under which the rider benefits are not payable.

For example, an insurance company could define permanent disability as 'permanent and immediate inability to work, the permanent loss of use of two limbs or a total and permanent loss of sight'. So you may not get the full rider benefit if you were to lose only say, one limb, or the said disability did not affect your capacity to work.

These definitions can vary as per the insurance company's discretion. It is vital to understand which illnesses are covered by the insurer under the CIB rider. The number and type of illnesses covered vary depending on the insurance company. Some companies cover as many as12 illnesses while others cover fewer illnesses.

Finally, insurance seekers must understand that while riders are important, they are essentially add-ons to the insurance policy. The life insurance cover should always take precedence and be treated as the core necessity. Only after having adequately insured yourself, should you consider riders.

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