Expert advice

Jul 10, 2012,14.39 IST

Expand your life insurance cover with a rider

We let you in on the different types of riders that come along with insurance policies

Deepak Yohannan
MyInsuranceClub.com

When buying an insurance policy, your agent or insurance company would most often recommend an additional cover over and above your policy. This additional cover is known as a Rider. A Rider is an added benefit that you could opt for along with your base policy. Available at an extra cost it lets you customize your policy to suit your specific needs.

Usefulness of a rider
The basic purpose of an insurance rider is to give you more than what your base policy offers you. Its need arises when you are not completely satisfied with the life insurance policy and seek a bit more. Most common examples of an insurance rider are Critical Illness rider, Personal Accident rider or Permanent Disability rider that is popularly offered along with a life insurance policy.

Basic features:

  • Enhances your insurance cover
  • Can be attached to any kind of insurance policy
  • Customizes your policy to suit your specific risks
  • Available at a much lower cost than the base policy
  • Tax breaks under Section 80C and 80D depending on the nature of rider

Rider Costs
Riders are relatively cheaper than your base policy. Generally costing in the range of 5 to 10% of your base policy premium, it is always recommended you opt for a rider at the inception of the policy itself, as the earlier in the policy you take a rider the cheaper it could be. Many insurance companies in fact insist you opt for riders at policy inception itself. Though there really isn’t any restriction on the number of riders one could opt for, the Insurance Regulator has specified that the premium on the rider should not be more than 30% of the premium paid for the base insurance policy.

Choosing a Rider:
Riders are definitely a cost effective way to get an extra protection from your insurance policy. With insurance policies being standardized for all investors, the best way to customize them is by opting for riders. It lets you cover specific risks without having to buy another insurance policy.

Rider versus stand alone policies:
Certain types of insurance covers, such as personal accident or critical illness, are offers as a rider and as a standalone insurance policy. It is common confusion amongst investors often as to whether they need to choose a rider or a standalone policy. What it the difference between the two?

To start with riders are cheaper than stand alone policies. They offer limited benefits though in comparison to stand alone policies. Riders automatically lapse once the base policy is surrendered, lapsed or discontinued. On the other hand, a standalone policy for the same cover would cost you more but in return would give you a wider and more comprehensive protection. If you are looking for a specific protection for a limited duration, a rider may work out as a better option. If it a complete comprehensive protection is what you seek a standalone policy should be your choice.

The choice thus must stem from your individual needs. An evaluation of your circumstances, occupation, lifestyle and family would give you a clear picture of what are the risks specific to you.

The Common types of Riders:
Accidental death benefit: Pays the nominee an additional sum assured over and above the base policy, if death occurs due to accident.
Waiver of premium: Ensures continuity of base policy, in the event of nonpayment of premium due to a disability, critical illness or death.

Critical illness rider: Pays a certain amount in the event of diagnosis of a critical illness during the term of the policy. The diagnosed illness must be within the purview of the insurance company's defined categories of critical illnesses.

Income benefit rider In case of death of the life assured during the term of the policy, 10% of the rider sum assured is paid annually to the beneficiary, on each policy anniversary till maturity of the rider.

Term Rider: An endorsement or attachment to a life insurance policy that provides additional term coverage for the amount specified. If the insured dies during this time, the designated beneficiary(ies) can receive death benefit proceeds.

The author is CEO of MyInsuranceClub.com and can be reach at deepak@myinsuranceclub.com

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