What is an Accidental Death Benefit Rider in ULIP?
An accidental death benefit rider is an insurance feature which is designed to provide extra financial security to a family if the policyholder passes away due to an accident. An accidental death benefit rider can be added to your ULIP, which pays out an additional rider sum assured along with the basic sum assured. It is important to note that an accidental death benefit is only viable when the death of the policyholder is caused by injuries due to an accident.
How Does an Accidental Death Benefit Rider Work in ULIP?
The key mechanism of an accidental death benefit rider in ULIP works by providing a separate and extra layer of financial protection above the primary coverage of your ULIP.
- Double Payout
- If an accidental death benefit rider is added to your ULIP, the nominee will be paid the death benefit along with the rider’s sum assured.
- Conditions for payout
- Time window: Insurers generally provide for a clear window to release the accidental death benefit. This means that the death must be the sole and direct result of any injury caused by an accident and should occur within the specified number of day of the date of the accident. Many insurers use a window of 180 days, which can vary as per your insurer.
- Active coverage: It is also important to ensure that the ULIP and the rider must both be active if and when the accident occurs.
- Mandatory lock-in periods: ULIPs and the riders added with the ULIP both carry a mandatory 5-year lock-in period. No withdrawals or payouts can be made under the rider other than the accidental death benefit itself.
- Premium discontinuance or surrender: Your Accidental Death Benefit Rider is attached to your ULIP; thus, if you surrender your ULIP, your rider cover terminates with it. However, some insurers allow the rider to continue on a reduced paid-up basis if your ULIP plan is eligible. The rider’s sum assured is scaled down in proportion to the premiums paid.
- Return of Premium: In case the policyholder lives on till the ULIP matures, no maturity benefit is paid under the rider; however, if you choose the optional with return of premium version of the rider, all the premiums paid for the rider are refunded as guaranteed maturity benefit.
What Does an Accidental Death Benefit Rider Cover?
ULIP accidental death benefit riders cover various situations; however, they can vary with the insurer of your choice. Let us look at some standard situations covered by most insurers.
- Road and Traffic incidents: Any death caused by an accident resulting from crashes, motorcycle accidents or any other public transport collision is included in the rider.
- Commercial aviation accidents: If the death results from any scheduled commercial aeroplane crashes, the accidental death benefit rider applies.
- Fire and burn injuries: Any injuries resulting in death due to a fire are included.
- Firearm accidents: Death due to accidental firearm discharges is included.
- Other fatal situations: Any death caused by homicides and wrongful deaths are included under the accidental death benefit rider.
What is Not Covered Under an Accidental Death Benefit Rider?
It is essential to understand the exclusions of an accidental death benefit rider. Insurance companies do not pay out the benefit in cases of
- Self-harm: if the death is caused by suicide or self-harm, irrespective of the mental state of the policyholder.
- Substance influence: Any accidents that occur when and if the policyholder is under the influence of any substance like alcohol or drugs.
- Extreme sports and hazardous activities: Any accidental death caused due to participation in life-threatening activities or sports is not included
- Unlawful behaviour: Any death occurred under unlawful circumstances where the policyholder is found breaching the law with criminal intent
- War and civil unrest: Any death caused due to war or civil commotion
How is the Accidental Death Benefit Calculated in ULIP?
The calculation of an accidental death benefit rider generally depends on the structure set by the insurer. The insurer can calculate the benefit based on the chosen life cover amount of the base plan or as a fixed lump sum selected at the time of the purchase of the ULIP.
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Total payout calculation
The total payout made to the nominee is calculated by adding the base policy’s death benefit to the rider’s benefit.
{Total Payout} = {Base ULIP Death Benefit} + {Rider Sum Assured}
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Calculation of the Rider Benefit
Flat payout: The payout is calculated as a flat 1005 of the rider sum assured when the policy is purchased
Multiplier formula: The accidental death benefit can also be calculated as the highest of the following
- Chosen rider sum assured
- 10 times the annualised premium
- 105% of the total rider premiums paid till the death of the policyholder
Example: A policyholder paying an annual premium of ₹1 lakh with a sum assured of ₹10 lakh, an accidental death benefit rider of ₹25 lakh dies due to an accident. The fund value at the time of the accident is ₹6 lakh.
Thus, the death benefit will be equal to the higher of the sum assured or the fund value.
Since the sum assured is higher, ₹10 lakh will be paid to the nominee as death benefit
Since the ADB payout is equal to ₹25 lakh. A total of ₹35 lakh will be paid to the nominee.
