A million dollar question that may have been asked a million times “Do riders make sense with term insurance”
Let's look a little closer at the "rider" and why a term life insurance shopper should keep a close eye on the benefits.
Let us first understand what is a rider? A rider is essentially an add-on benefit that can be attached to base life insurance policy. It typically costs extra premium.
Below are some of the riders that can be attached to term plan.
Accidental Death Benefit:
This rider essentially adds an amount of insurance to be paid out in case the insured dies as a result of injury. Popularly this is known as double accident benefit (DAB). The cover for this rider cannot be more than the base cover.
Critical Illness Rider:
A very common type of rider, which is normally offered by majority of insurance companies. The rider pays out a lump sum amount equal to the rider sum assured on diagnosis of specified illness. Now there is standardization in definition of critical illnesses and different companies may cover different critical illness. For e.g. company X may cover 4 critical illnesses and company Y may cover 10 critical illnesses. Obviously, the premiums would also vary depending on number of illnesses covered.
Common critical illnesses include cancer, stroke, heart attack, kidney failure, major organ and bone transplant, multiple sclerosis, CABG repair of heart valve.
Waiver of Premium Rider:
This rider allows the policy to stay in force without the payment of premium if the insured becomes totally disabled due to accident or sickness (please check the exact definition from the brochure of insurance company). This type of rider is very uncommon in India especially for term plan. If this offered, it is worth including in your policy.
Accelerated Death Benefit Rider:
This rider allows the insured to receive a percentage of the total coverage amount if he/she is diagnosed with a life threatening disease or critical illness as discussed above. This amount can be used on improving the living conditions of life assured. It is worth noting though that the sum assured payable on death would be reduced by the amount of benefit already paid (accelerated benefit already paid).
These are some of the common riders available in the market. There may be some more riders available. An important thing to note here is that the maximum premium for all riders together cannot be more than 30% of base premium. For example, if your base term plan costs you Rs. 20,000 then rider premium cannot be more than Rs. 6,000/-.
If you have adequate standalone critical Illness plans and accidental insurance cover, then adding rider to term plan may not be most appropriate action, but in case you are unprotected go for them. On the other hand accelerated benefit rider and waiver of premium rider could be your default choice.