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Risk Cover Policy

Life insurance is a contract or agreement between an insurer and a policyholder. The insurance buyer pays a premium amount to the company, and in exchange for this, the insurer provides a risk cover against the policyholder’s death. Thus, the beneficiary receives a payout if the policyholder suffers an unfortunate demise. For a life insurance plan to benefit your nominee, it is important to choose an adequate risk cover.

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What is a Risk Cover Policy? 

Risk cover is long-term insurance that offers financial protection against the major unfortunate events of life such as disability, critical illness, or death. The real value of a risk cover is sometimes only experienced when one is challenged with the event reality which needs an insurance claim. In these situations, individuals are either insured and receive the required financial support in their difficult times or they are not, and facing increasing expenses and burdens during already critical times. 

How Does Risk Cover Policy Work?

Using the monthly premium payment, you can cover your own life and those individuals who are financially dependent on you. As a business, you can also protect a particular individual or your business partner. Then, the insurance company will pay a pre-specified amount, called a sum assured. The amount of premium is based on the individual risk profiles which are determined by the company before taking the policy. 

The following are the four main personal risks addressed by risk cover insurance:

  • Critical Illness: If you get diagnosed with a critical illness mentioned in the policy documents such as stroke, cancer, heart attack, Parkinson’s, and Alzheimer’s, you will receive a life cover against medical and other required lifestyle adjustment expenditures involved. 

  • Disability: If you get disabled because of an illness or accident, and are not able to earn money, then you will receive financial coverage to compensate for the loss in earning ability. 

  • Retrenchment: If you are being retrenched from your employment, this risk cover will secure your income for a few months instantly after, providing you a time to find a new job. 

  • Death: The family will receive financial security in case of your unfortunate demise. 

Why Do You Need Risk Cover Policy? 

Risk cover ensures that your loved ones and dependents will have an income if anything happens to you. 

During these unprecedented times, it is necessary to have an income protection cover that protects you against any accident or illness. It is not only designed to pay out because of salary cuts or drop in their incomes, but some have retrenchment cover which pays for a fixed time such as 6 months. Some people overlook the fact that the ability to earn is your largest asset and your expenses will not decrease if you will not work. Critical illness and disability cover should therefore be in place as early as possible and before there are any dependents to support. 

How To Choose the Right Risk Cover? 

Buying a life insurance is a necessity, but it is also important to choose a sufficient life cover. Below mentioned are the factors that you should consider while selecting the right risk cover policy:

  • Present Annual Income: Since the payout offered by a life insurance policy can act as an income replacement during the untimely demise of the policyholder. It is important to consider your present yearly income while deciding the risk cover. It is recommended to go for a sum assured that is at least equivalent to 10X of your current income yearly. 

  • Monthly Expenditure: Your premium amount payable is associated with the sum assured chosen at the time of buying the policy. Opting for a large sum assured will result in you paying a high amount of premium. So, always calculate your monthly expenses and assess how much you can pay as a premium. You can use a term insurance calculator to get an accurate premium amount you would need to pay for the desired life cover.

  • Inflation: With the rapid increase in the cost of living annually, it is important to consider inflation while opting for the right risk cover policy.

  • Debts and liabilities: You should assess how much you are required to pay to the lenders in the form of debts and loans to accurately find out the right risk cover. The sum assured you select should be sufficient enough to pay all your liabilities without any hassle.

  • Policy Tenure: The tenure chosen should be sufficient enough to meet all your coverage requirements. If you want a cover for the long term, you can go for a whole life insurance plan, which provides you cover for your whole life. 

  • Riders: Insurers generally offer riders to policyholders that help them customize the policy by enhancing their plan coverage.  

  • Age: Insurers generally have pre-determined age limits for all life insurance plans. You need to check the entry and maturity age of a policy. 

  • Premium: Premium rates of life insurance are associated with several parameters such as policy tenure, age, risk cover opted for, purchased riders, etc. Ideally, while purchasing the policy, you should always compare different plans to find a plan that is right for you as per your requirements.

Wrapping it Up!

To answer the question, “What is a risk policy in insurance?”, it is life insurance covers the risk of eventualities like death or disability of a person. This life risk insurance ensures that the policyholder and their family are financially covered in case of an unfortunate event like the death of the policyholder, accidental disability, critical or terminal illness, and more. By buying this risk cover insurance, you can live your life stress-free by securing a large life cover at affordable premiums.

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