What is an Income Benefit Rider in ULIP?
An Income benefit rider is an optional add- on rider which can be attached to a ULIP to provide a regular income to the policyholder or their family in case of a mishap. Unlike a standard ULIP death benefit, an income benefit rider ensures that the receiver of the payout receives a regular and structured income payment as per the selected frequency. This rider is designed to act as a salary replacement in case of need.
How Does an Income Benefit Rider Work in ULIPs?
The key role of an income benefit rider is to act as a salary replacement to provide the family of the policyholder with financial stability if they are met with unfortunate circumstances. Let us look at how an Income Benefit Rider works.
- Purchasing the rider: If you wish to benefit from the features of an income benefit rider, you will have to buy it at the inception of your ULIP. Some insurers also allow you to purchase the rider later; however, only during the anniversary of your plan.
- Trigger event: Specified events under the terms and conditions of the plan trigger the activation of the income benefit rider. These events can include the death of the policyholder, accidental permanent total disability or the diagnosis of a critical illness.
- Calculation of the payout: The income provided to the policyholder or their family is generally calculated as a percentage of the sum assured. A common setup pays 1% of the sum assured on a monthly basis. It is important to note that the duration of the payout depends on the insurer of your choice and can vary as per the terms and conditions of your plan.
- Example: An individual buys a ULIP with an annual premium of ₹1 lakh and a sum assured of ₹10 lakh. They also opt for an income benefit rider that pays 1% of the sum assured as monthly income.
- Sum assured: ₹10 lakh.
- Monthly income: 1% of 10,00,000 = ₹10,000 per month
What Does an Income Benefit Rider Cover?
The inclusions of an income benefit rider can vary from insurer to insurer. However, some common inclusions include the following.
- Untimely death: In case the policyholder passes away during the policy term, the rider ensures that the nominee is provided with a regular payout as per the frequency chosen by the policyholder.
- Accidental or permanent total disability: If the policyholder is left permanently and totally disabled due to an accident and cannot earn a regular income, the income benefit is triggered to provide the policyholder and their family with a regular income.
- Critical Illness: If the policyholder is diagnosed with a medical condition which is covered under the rider, the rider will activate and pay a regular income which can be used to cover ongoing expenses.
What Are the Benefits of an Income Benefit Rider in ULIPs?
An income benefit rider can offer you various advantages and convert your ULIP into a robust and structured safety net.
- Reliable stream of income: Instead of a lump sum payout, an income benefit rider provides a steady and regular stream of income, which can act as a salary replacement. This can help the dependents to manage day-to-day expenditures and daily household costs.
- Shielded from capital market volatility: The payouts provided when the rider is triggered are completely devoid of market exposure and thus remain unaffected by market volatility.
- Financial security and planning: A lump sum amount at times can be hard to manage for families; however, a predictable, recurring and regular stream of income can help reduce financial mismanagement. A regular income can be apt for families who rely on a single earning member.
- Flexibility and Customisation: You can choose the frequency of your payout structure. This means that you can choose whether your family receives the payout on a monthly, quarterly or yearly basis. Based on the insurer, you can also choose the duration of the payouts, which can range between 5-20 years or till the policy matures.
What Are the Exclusions of an Income Benefit Rider?
It is important for you to understand the key exclusions under the income benefit rider.
- Any disease or medical condition existing before the rider was purchased is not included.
- Death or disability caused by self-inflicted injury is not included
- Medical conditions related to HIV/AIDS are generally excluded
- Any injuries or death caused by war is excluded
- Any injuries or death caused due to substance usage or unlawful activities is not included under the income benefit rider.
Conclusion
An income benefit rider is apt for individuals who wish to provide a regular source of income to their family in case of a mishap. It can ensure that the dependents of the policyholder or the policyholder are compensated via a regular income, which can help them manage day-to-day expenses and maintain a standard of living.
