Buying life insurance cover is one of the most vital aspects of Financial Planning. And choosing a suitable life cover is a very important decision. Term insurance has the been the simplest form of life insurance product to understand. The insured pays regular premiums during the policy term and in the event of his death, the nominee gets a lump sum death benefit. But even with a simple term policy, many a times, there is confusion among buyers. It is because of the extra features called the insurance riders which come on offer along with the base cover of a term plan. They are optional to choose from and enhance the coverage. Some are free and some add up to the cost.
Let us examine in brief the various type of riders:
Accidental Benefit Rider
While a term plan covers accidental death, this rider offers additional sum assured if the death occurs due to an accident. So, suppose an individual buys a policy of Rs.50 lakhs with an accident rider of Rs.10 lakhs. In case of death by accident, the nominee will not just get the base cover of Rs.50 lakhs, he will also get the extra pay out against accidental death of Rs.10 lakhs.
Waiver of premium
This rider is helpful in case a policy holder is disabled permanently. The insurance company will waive off the future premiums while his life policy will continue. While some companies offer it as a free rider, some charge a nominal amount.
Permanent disability
This rider also covers permanent disability. The insurance company will pay the policy holder a percentage of sum assured or a flat lump sum amount as mentioned in the policy. Note that many companies offer the rider to cover disability only due to accident. So, it is prudent to read the policy document carefully to understand the terms and conditions.
Critical illness
This rider provides a lump sum amount if the policy holder is diagnosed with a life-threatening illness which is pre-specified and is mentioned in the policy. It can cover against critical ailments like heart attack, cancer, stroke, kidney failure, etc. The list of diseases varies from insurer to insurer.
Early claim on terminal illness
In case the policy holder is diagnosed with a terminal illness, the insurance company will pay the sum assured before death.
Should you buy riders along with base life cover?
Your main goal in buying a life cover should be to help your loved ones cope with financial responsibilities in your absence. So, do not let the riders distract you from your main goal. They should not be a criterion to select a suitable term plan.
Accident riders come at a nominal rate. You can consider to add accident cover to your basic term plan cover. Note that most accident cover riders do not include partial disablement (loss of one hand, one leg or one eye) and temporary disability that can affect your income generation. They cover only permanent disability. So, it is important to read the terms and conditions carefully in the policy document. If the nature of your profession involves frequent travelling, then you can consider buying a separate personal accident policy.
Further, health insurance is all the more required after 60, as chances of getting sick are high with passing age. Most term plans usually cease at 60 and so would the riders. In this regard, a critical illness rider will not benefit and is unlikely to be utilised. Just as life insurance is not suggested to mix with investments, even life and health insurance should be kept separate. If you have a history of critical illnesses in the immediate family circle, you can consider to buy a separate critical illness policy.
To conclude, do not blindly add on the riders to your base term plan as they come with a cost. Understand your needs first. Read abut the terms and conditions carefully to check what is and what is not included in a rider.