Why Should You Choose A Rider When Buying A Term Plan?

A term insurance plan is the purest and wide-ranging means of financial safety that benefits the payees in case of the life assured’s demise. At low premium rates, one can simply protect themselves against life risk at a large sum assured. Though, when buying a term insurance policy, you can enhance its efficiency by customizing it according to your requirements. You can easily do this by choosing for additional benefits i.e., riders.

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What are Term Insurance Riders?

Buying a term insurance plan is the right way to provide financial protection to your dependents in the untimely event of your death. While you require to choose the amount of coverage and the tenure, term insurance policies also come with add-ons i.e., riders which you can purchase by paying a minimal amount of premium. 

In simple words, A term insurance rider is an optional and additional coverage that you can attach to your base term plan for an extra premium, thus increasing the scope of the policy. They provide coverage against a defined set of diseases such as critical illness or disability, situations, or conditions that cannot be covered under a term insurance plan. The rider also makes sure that the policy remains active even if the policyholder cannot pay premiums for certain reasons which might lead to income loss.  

Benefits of Choosing Term Insurance Riders

Apart from increasing the coverage of your term insurance policy, riders are important since you do not have to buy a separate plan for an uncertain event. You can select to add a few riders to your base plan by paying a minimal amount of premium, but that is more cost-effective and hassle-free than having to buy another plan for more coverage. 

Following are the benefits of term rider:

  • Extended Coverage: While a term insurance plan provides adequate financial coverage for your loved ones in your absence, the price of medical treatment or the lack of income because of complete disability of the policyholder is outside the horizon of a term insurance plan. Using waiver of premium riders, one can waive off their premiums in case of total permanent disability, providing the policy in force. 

  • Cost-effective: Buying a separate insurance policy in addition to your current plan to cover the rates of medical bills, critical illnesses, or accidental death/disability can become expensive. By incorporating the right riders into your base plan, you can pay the premium without any hassle for another plan. Riders are opted by paying an extra premium, but they are more cost-effective than buying a new plan. 

  • Provides emergency Income: If the policyholder, who is the breadwinner of the family, is not able to provide income for their family members because of partial or complete accidental dismemberment, having a good rider to cover these cases would pay out a specific % of SA to the policyholder’s family over a certain time period. This makes sure that the affected family of the insured does not have to face any financial difficulty due to the loss of a stable income. 

  • Tax Benefits: Get tax benefits on riders as per the prevailing laws of the Income Tax Act, 1961

Types of Term Insurance Riders 

Below are some of the common riders that come with a term insurance policy: 

  1. Waiver of Premium Rider 

    Selecting this type of rider would ensure that the plan remains in force, regardless of the insured failing to pay the amount of premium due to a financial crisis. The impact of this rider might redeem the plan from lapsing fully. 

  2. Critical Illness Rider 

    Critical illnesses are generally not included in the term insurance policies. Thus, this rider can be involved within your insurance policy to cover your family against critical illnesses and diseases such as brain tumors, cancer, heart attack, etc. These riders also provide exemptions on tax u/s 80D of the ITA, 1961. 

  3. Income Benefit Rider 

    For any household, losing the sole earner could result in a financial emergency. To avoid such cases, the income benefit rider offers a fixed salary for a specific time of around 5-10 years. Income Benefit Rider is provided to the beneficiaries/nominees over and above the amount of sum assured. 

  4. Accidental Death Rider 

    Most life insurance plans provide coverage for accidental death. Thus, purchasing this rider would decrease the financial burden on the policyholder’s dependents since it offers an additional amount coupled with the sum assured decided by the insurer. 

  5. Accidental Disability Rider 

    Accidental Disability Rider comes into effect during any permanent or temporary disability caused because of an accident. In such cases, the rider offers regular cover for around 5 to 10 years in a pre-determined range of percentage of sum assured. This rider can only be used if the disability results due to an accident. 

Points to Remember About Term Riders 

Term riders offer maximum cover to the policyholder. Attaching riders to your policy helps in providing life cover in cases that are not enclosed under the insurance policy. Sometimes, some insurance companies ask you to attach term riders at the time of purchasing a plan but few companies allow you to attach them at later stages. There are a few significant situations you should be aware of before purchasing a benefit from a rider as per IRDAI: 

  • No limit is there on the number of riders you can add to your base term plan 

  • After adding health-associated or critical-illness rider benefits, the amount of premium should not surpass 100 percent of the premium price of a base term plan. 

  • The Premium amount should not be more than 30 percent of the rate of premium of a base plan after attaching different riders. 

  • Benefits availed from each rider should be more than the SA of the base plan 

  • One is allowed to claim tax benefits for all riders, excluding health linked or critical illness rider u/s 80C

  • Claims or rider benefits received are exempted from tax deductions u/s 10(10D)

Wrapping It Up! 

Adding appropriate riders to your term plan can be important if done at the right time. Thus, always be aware of the entry age for the riders as well as other important information close to the inclusion of riders in your term policy. 

“Tax Benefit is subject to changes in tax laws. Standard T&C apply.”

“All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C apply.”

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