Term insurance, in its typical form, provides death benefit to the dependents of the policy holder in case of death of the latter. However, riders are often attached to an otherwise term ‘life’ insurance as an add on to cover the policy holder and the dependents not just on death but on other adverse circumstances which might impair the policy holder from earning or undergo an elaborated treatment for a life-threatening ailment.
The riders available for a term insurance are:
- Critical Illness Rider-The expenses arising out of a critical illness is huge. Thus, the critical illness rider helps the policyholders remain shielded against the expenses incurred due to critical illnesses right from the diagnosis stage. However, depending on the insurer, the base assured sum may lapse or continue as listed in the terms and conditions during the purchase stage.
- Waiver of Premium- Circumstances where an individual is unable to pay the premium amount for a policy, the policy lapses and no benefits can be reaped further. With the waiver of premium rider, any lapses in the payment of premium arising due to loss of employment or other financially unstable conditions would not result in the lapse of the policy. The policy remains intact with the same benefits with all the future premiums being waived off.
- Accidental Death- In case of a sudden death of the policyholder, along with the benefits reaped from the base sum assured, the dependents of the policyholder receive additional cover to meet the medical expenses arising from the accident and meet the unfulfilled and pending financial obligations.
- Partial or Permanent Disability- Since an accident leading to partial or permanent disability can also lead to loss of employment and other financial and employment frictions, a certain percentage of the total sum assured of the policy is paid out to the policy holder or the family. Generally, 10% of the base sum assured is paid out as a cover for permanent or partial disability arising from an accident.
- Income Benefit Rider- In case of an unfortunate death of the policy holder, the family is compensated with the cover under income benefit rider. This acts as a regular source of income for the dependents.
Why and When is a Rider used in Term Insurance?
A general term insurance policy is a must have for every individual, especially when they are the sole bread winners of the family. However, there are various other circumstances that arise due to a critical illness or an accident leading to disability which might in turn show up in terms of higher medical bills or loss of a steady source of employment and income. A rider helps in a significant scale during such circumstances in exchange for a slightly higher premium. A regular term or life insurance policy provides benefit to the dependents and the nominee only after the death of the policyholder. However, one with a rider, provides coverage to the policy holder and the dependents during critical illness right from the start of diagnosis, income benefits during loss of employment or income because of an accident and waives off the premium in case of a loss of job.
Advantages of Riders in Term Insurance
- Critical illnesses require a lump sum amount of money for treatment and for a longer duration. A critical illness rider assists the policyholder and the dependents by covering the medical expenses right from the time of diagnosis, during the treatment and other lifestyle changes arising from the illness. Illnesses like heart attack, cancer, stroke, coronary artery by-pass graft surgery, paralysis, kidney failure, major organ transplant, and etcetera are normally covered by every insurance company. Though the policy may continue with a lessened sum assured post the detection of critical illness or may terminate depending on the policy terms and conditions. However, a rider provides the needed financial support during the crucial hour.
- A supplementary steady income source can be assured for the family in case of death of the policy holder for the next 5 to 10 years through an income benefit rider along with the sum assured.
- In case of loss of employment of the policy holder, the additional liability of premium payment apart from meeting the other financial obligations can be avoided with waiver of premium rider which helps with a steady source of income.
- Death or disability arising from an accident is covered by the accidental death benefit and accidental disability benefit riders which pays out an additional sum of money apart from the sum assured.
Since we cannot foresee the future, it is better to prepare ourselves for the difficult times. A rider is thus a must-have to a term insurance policy.