Understanding Life Insurance Rider Through An Example

Riders are optional, supplemental terms that apply to an individual’s existing insurance and are frequently charged separately. Simply defined, a rider is a supplement to an insurance policy that provides additional coverage and risk protection. Insurance riders are low-cost add-ons to a life insurance policy. They strengthen and broaden one’s policies to cover more than simply the expense of their death.

In addition to the benefits of an individual's existing policy, life insurance riders provide extra benefits. Some life insurers charge a premium, while others do not, but they are all wise investments since they give more benefits at lower rates than stand-alone policies. They may be custom-tailored to an individual’s specific needs and used in a variety of ways. To understand and know more about riders, read on.

Understanding Life Insurance Riders

Following are some riders that can be understood with the help of the functionality of their respective examples -

• Waiver of Premium Cover

The rider is frequently added to a life insurance policy as an extra or additional benefit. It's only accessible when a policy is approved, and the fee varies depending on the insurer and applicant. Insurance companies usually charge an upfront cost or add the rider price to the premium. This fee will increase the cost of a life insurance policy, so it's something to think about before you buy.

Most premium rider waivers include a waiting period during which no benefits can be claimed. The policyholder may be entitled to a full refund of paid premiums if they become physically disabled or injured during the waiting period. Without a waiting time, the insurer's anticipated risk skyrockets, potentially resulting in catastrophic losses.

For Example, A 31-year old woman named Rohini purchased a life insurance policy for her 1 year daughter where she insured her life with Rs 20,00,000 as ensured base sum for 15 years, with a maturity benefit of around Rs 60 lakhs and a Premium Waiver Benefit rider if she dies or becomes unable to work. However, she had to pay an additional premium for the rider benefits.

Now, she wanted her daughter to pursue MBA with the money she would have received after 15 years. Unfortunately, after paying 5 premiums Rohini had a severe cerebral attack and passed away leaving her daughter with her mother. 

Thankfully, the life insurance policy that Rohini had provided her mother with the money required to bring her daughter up. Rohini’s mother immediately got Rs 20,00,000 and the future premiums of Rs 36500 for the remaining 15 years was paid by the insurer such that the daughter did get the maturity benefit of entire Rs 60 lakhs + Bonus (as it was a participating policy) when she was 21 years old to do an MBA, as Rohini had planned of.

• Accidental Death And Dismemberment Rider

Unforeseen events or calamities can ruin any individual’s future ambitions while simultaneously draining the family's money account. In the case of an accidental death or dismemberment, this rider guarantees that the family's financial future is protected. The supplementary protection benefits kick in if the life insured is involved in an accident that results in death or dismemberment.

For example, Ms. Sehgal buys a life insurance policy to protect her financial future. She opts for insurance with a 15-year policy term and a 12-year premium payment period, with an annual premium of INR 1,00,000. She also buys an accidental death and dismemberment rider with a sum assured of INR 20,00,000, a policy term of 15 years, and a premium payment period of 12 years to ensure full coverage.

In this case, if the insured dies in a car accident after paying six premiums, her family receives the base plan's guaranteed death benefit as well as any collected bonuses. The family is also entitled to a rider sum insured of INR 20,00,000.

• Critical illness And Disability Rider

After a 'waiting time,' an insured individual obtains complete financial protection against a number of dangerous diseases under this rider. The insurance company will offer a predefined reimbursement to the life insured and their family in the event of a diagnosis of one of the listed critical illnesses. In the rider's terms and conditions, the list of main illnesses covered and the minimum surviving duration are listed. Buying this rider is usually a wise financial decision because it reduces the expense of fighting a number of serious diseases.

For example, an individual may buy a life insurance policy with a five-year premium payment term and a ten-year policy term. They also pay a little premium to add a critical sickness and disability rider (covered for INR 15 lakh with a five-year rider premium payment period) to their policy for further protection.

In the third year of the coverage, an insured person is diagnosed with one of the serious diseases specified, the rider sum guaranteed of INR 15 lakh is paid to them and the rider is cancelled. The insurance's standard benefit is also unaffected by the rider payout.

Endnotes

A policyholder can add a variety of riders to their policy. It's typically a good idea to educate oneself with the numerous advantages, inclusions, and exclusions before deciding which benefits, inclusions, and exclusions must be included. People should also consider the expense of adding these riders to their insurance policy. To make the best decision, one must spend substantial time studying and understanding the numerous possibilities available.

Also read: How Riders Help You Support Your Life Insurance Policy?

How Can Term Rider Be Beneficial?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.