How to choose term insurance riders

Published: June 21, 2021 at 9:56 am

We are living in the era of a pandemic, which has altered the way we used to look at insurance. Most Indians perceived insurance as an ‘investment’ or tax-saving instrument earlier, but the pandemic has made us realize the importance of protection.

About the author: Vivek Sulegai is a SEBI Registered Investment Adviser and member of Fee-only India. Previously, he worked for a mutual fund distribution company. A chance meeting with Avinash Luthria opened the doors of Fee-Only Financial Planning. He strongly believes that managing behaviour around money is equally important for financial success in addition to understanding the basics of investments. You can contact him through his website wealthcrafts.in

So, getting started with what Insurance is… Insurance is a risk mitigation tool to provide for your loved one’s financial needs in case of eventualities like death, accident, illness etc.

You would require a term insurance if you have financial dependents. If you have enough assets that can generate the required cash flow for your financial dependents you do not require a term insurance.

Life insurance companies have come up with various riders (add on benefits to your term insurance) which can get very confusing. While all riders help you, there are a few that can come in handy. Let us look at a few of the common riders and understand them better.


1 Accidental Death Rider

Under the accidental death rider, if the policyholder dies as a result of an accident – such as a car accident, plane crash, or industrial accident – within the policy term, the insurer will pay his or her family or dependent an additional sum insured for this rider. This amount is in addition to the sum assured for the family’s basic term life insurance policy.

For Example, X amount of term life insurance, and you have accidental death benefit coverage of Y amount. Now, if the insured dies, the family will receive X+Y amount.

Point to be noticed here, even without this rider, the basic sum assured will still be paid. The rider simply promises an additional sum over and above the basic sum, in case of death due to an accident.

People who work in dangerous conditions or travel frequently for business purposes can avail the benefit of the rider. The meagre additional benefits that come along don’t justify their additional cost. If you need additional cover, it would be better to opt for a higher cover in the first place.

2 Accidental Disability Rider

This rider assures that in case of the policyholder becomes disabled due to an accident, then he/she receives the sum assured against the rider. This can be received as a lump sum after the accident or as a monthly income for a fixed tenure. That might be for two years, five years, or 10 years, depending upon the financial need of the policyholder.

The thing to be noted here is, if the policyholder becomes total/permanently disabled, the entire sum assured is paid to him. In the case of partial disability, the insured gets only the partial sum assured. The percentage of disability depends upon the severity of damage as declared by the doctor treating him/her. This rider will provide an additional sum of money in case you meet with an accident that leads to disability, but most insurer’s usually limit it to 50% of your life insurance sum assured.

Most insurer’s also do not provide for temporary disability through this rider. It is recommended that you always opt for an independent personal accidental cover that provides adequate cover and includes temporary disability.

3 Critical Illness Rider

Under this critical illness rider, if a policyholder is diagnosed with one of the critical illnesses mentioned in the policy, the insurer will pay out a sum of money that can be used for medical treatment and other expenses. This amount can be used by your family for all the additional expense, as well as support your family’s ongoing expenses.

There are a few major limitations here. The sum assured for this rider is fixed during the entire tenure and cannot be increased (a big drawback as medical expenses will inflate over a period of time making the cover amount meaningless). Since it is linked to your term insurance, it ceases to exist with it. While you would require the term insurance until you have financial dependents (usually until you are 60 or 65 years of age, or till your children are financially independent), the need for a critical illness increases as you age. You would have no critical illness cover once your term insurance cover ceases.

This rider also has limited critical illnesses that they cover in comparison to an independent policy. It is better to opt for an independent critical illness cover that can be renewed and kept active well into your retirement years.

4 Terminal Illness Rider

In case of terminal illness with a doctor’s confirmation of the insurer’s death in near months, then the insurer pays the sum assured to the insured/nominee without waiting. However, this has to be confirmed by the registered medical practitioners of that specific field.

Instead of life insurance benefits being paid out until after your death, you and your family get access to some or all the funds right when you need them most. This rider is not usually offered if you are currently dealing with a serious medical condition and come with various conditions and limitations. Nonetheless, it could be a handy one.

5 Waiver of Premium Rider

Waiver of premium is an excellent rider for safeguarding policyholders against policy lapse in case of non-payment of insurance premiums. Most insurance policies cease to be active in case you are unable to pay premiums for a specific period of time.  There are two kinds of waiver of premium riders available-

(i) Waiver of premium on disability rider: If a policyholder buys a waiver of premium on disability rider, then in case of permanent disability, he/she would not have to pay the premium for the term plan in the future. But the policy will remain active till the end of the tenure, and the sum assured remains the same.

(ii) Waiver of premium for critical illnesses riders: Under this rider, if a policyholder is diagnosed with one of the critical illnesses mentioned in the policy, then his/her future premiums for the policy will be waived off. And like in the case of waiver of premium on disability, the policy will continue till the end of the tenure.

Meeting with an accident or developing a critical illness might not necessarily lead to death immediately, but it can certainly lead to reduced income generation capability. Most financial planners strongly recommend this rider, as it ensures that your term insurance remains active.

6 Income benefit rider

The income benefit rider ensures that if the policyholder dies during the policy tenure, his/her family will receive the sum assured as a monthly income for a fixed tenure instead of a lump sum. However, while buying the rider with the term insurance, the policyholder has to decide for how many years he/she wants their dependent to avail of this benefit. Say for example, after the death of the insured, the family can receive 10% of the sum assured for the next 10 years.

Although the returns under this option are lower, this is very helpful if you have a dependent who is not capable of managing money either due to old age or due to any other medical condition.

How to approach Insurance Riders

Some riders are just not needed and can increase your costs significantly, but riders like waiver of premium are very important. For an individual who has a dependent who is suffering from a mental condition, an income benefit rider can come in handy. In times of necessity, these riders may prove to be incredibly useful, as we cannot prevent the eventualities from happening, but can surely plan for the loved ones.

Always make sure that you evaluate your specific need for each rider and opt for only those that make sense.

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