Understanding Life Insurance Rider With Help Of An Example

Riders are optional, supplemental terms that apply to an individual’s base insurance and are charged separately. In simple words, a rider adds additional coverage and risk protection to an existing insurance policy. Insurance riders are cost-effective add-ons that an individual may purchase in addition to their life insurance policy. They strengthen and broaden one’s policies to cover more than the expense of one’s death.

However, having a mere insurance plan in an individual’s possession is not enough. To ensure all-rounded coverage, the applicable benefits that will add value to the chosen insurance plan are a necessity. These benefits are known as 'riders,' and they are selected based on the size of an individual’s family, future needs, living expenses, etc. To understand more on life insurance riders, read on.

Understanding Life Insurance Riders

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

1. Waiver of Premium Cover

This rider provides a waiver on all future insurance premiums on a respective of an individual in cases or events of dismemberment, disability, or severe illness as a result of an accident, sickness, or other cause. Aside from that, the insured individual’s family also continues to receive the policy's fundamental benefits, which may include bonuses, guaranteed income streams, or fund value growth, depending on the policy's kind.

For example, a 31-year-old man buys a life insurance savings plan to secure his family's financial future and build a fund for his child's further education. He opts for a base plan with a policy term of 25 years and a premium payment period of 12 years, costing INR 60,000 per year.

However, concerned about the child's future in the event of an unforeseen event, he chooses a waiver of premium rider, which ensures that if he is diagnosed with a critical illness or becomes disabled for any reason, the policy will continue without requiring any further premium payments and that all future benefits will remain preserved.

If the insured is involved in an accident and loses both arms after paying six payments, all future premiums will be waived until the expiration of the base plan's monthly payment period.

2. Accidental Death And Dismemberment Cover

Unforeseen events or accidents can derail anyone’s future plans and drain the family's bank account at the same time. This rider ensures to protect the family's financial future in the event of an unintentional death or dismemberment. The supplementary protection benefits come into play if the life insured is involved in an accident that results in death or dismemberment.

For example, a 29-year-old woman buys a life insurance policy to protect her financial future. She opts for insurance with a 17-year policy term and a 12-year premium payment period, with an annual premium of INR 60,000. Sfe also buys an accidental death and dismemberment rider with a sum assured of INR 5,00,000, a policy term of 17 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 5,00,000.

3. Critical illness And Disability Cover

Under this rider, an insured individual receives complete financial protection against a variety of serious diseases after a ‘waiting period’. The insurance company will pay a defined payment to the life insured and their family in the event of a diagnosis of one of the covered critical diseases (such as cancer or a heart attack of a particular severity). Under the rider's terms and conditions, the list of serious illnesses covered and the minimum surviving duration are listed. Purchasing this rider is always a wise financial decision, since it reduces the cost risk of fighting several 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 purchase a critical illness and disability rider (a INR 10 lakh rider amount insured with a five-year rider premium payment period) at a modest additional cost to ensure further protection.

If an insured person is diagnosed with one of the mentioned serious illnesses in the third year of the policy (while still paying the policy premium), the rider sum assured of INR 10 lakh is paid to them on proven diagnosis of disease (after the 14-day survival period) and the rider is terminated. The standard policy benefit also remains unchanged, unaffected by the rider payout.

Endnotes

To understand the advantages, exclusions, and qualifying criteria of the riders being examined, one should always read the terms and conditions attentively. Before coming to a final decision, speaking with a qualified insurance agent advisor can help dispel any misconceptions regarding the rider's advantages.

You may also like to read - Exploring ABSLI Life Insurance Riders

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.