Do You Need A Rider?

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The ever so persistent insurance agent Mr. Master finally got my young neighbour, Amit to buy a critical illness rider with his term plan. Amit later told me that the agent pushed for it aggressively and also it was rather cheap. At some point or the other, we all have received such calls and going by senior insurance executives, pushing riders with term plans is going to be the thrust area of insurance companies. Hence, consumers such as us need to choose with care so as to avoid getting caught with deadwood.

Riders are additional covers that one purchases with the policy. Charges for the riders are paid over the base premium; the regulator having capped the premium at 30 per cent of the base policy. Moreover, you can buy multiple riders on one base plan. Buying a rider depends on your stage in life and the covers you already possess. Depending on your stage in life here’s a look at some of the riders you can consider: 1)  25-35 years - Since liabilities are minimum, life insurance may not be necessary. However, if you have dependents, a term plan makes sense. In addition, you can take either accident death or accident and disability benefit rider. In addition, a waiver of premium benefit can also be provided.

Accident riders can also be taken either on an add-on basis or accelerated on the base plan. For total and permanent disability, there are riders that provide payment of a proportion of the benefits to the insured person every year until he recovers. Many insurers also offer riders for women-specific health problems like pregnancy complications, breast cancer, child birth disorders, etc. 2)  35-50 years - At this stage, one can consider purchasing a critical illness rider, along with an accident rider. In addition, experts suggest a ‘premium waiver rider’ for those with dependants wherein the future premiums on the base policy are waived if the insured becomes permanently disabled or loses his/her income/life as a result of injury or illness prior to a specified age. Other two options could be: 1. ‘Family income benefit rider’ which provides death benefits and a monthly income (one per cent of the sum assured per month) to the beneficiary if the insured dies before the policy lapses. 2. ‘Hospital cash rider’, which takes care of the expenses like hospital room rent and other miscellaneous cost on hospitalisation.3)  50+  - At this stage, it is not advisable to go for any new plans or riders as the plans become more expensive. However, one needs to ensure that you have accident, health and life cover at this age. If you wish to increase the sum assured for the term cover instead of buying a new policy, you can opt a term rider wherein you can attach the rider with your savings plan to get an additional life cover, which will be more economical than a separate policy.[PAGE BREAK]

Everyone thinks that they need insurance only when they die, but in fact, you need more insurance when you live. Surprised? In case of death, the expenses are for the remaining family only. But in case a person survives, a serious illness, the expenses zoom. The hospitalisation expenses can obviously be taken care of by the mediclaim policy bought by the insured, but in case of critical illnesses, the costs post-hospitalisation also may be huge. It is to address the needs of such a person that critical illness riders/ critical illness policy is required.

A critical illness policy can be bought in two forms, either as a rider to a life insurance plan or a stand-alone policy. A rider is the best way of getting critical illness cover if you are also simultaneously buying term cover, as the premium for the rider normally remains constant over the tenure of the policy. One needs to remember to buy the rider at the time you buy the term policy since insurance companies don’t allow riders to be attached in later years.

So if you have adequate term insurance you can buy riders for additional covers while buying term insurance rather than buying yearly stand-alone policies, which needs to be renewed every year; the premium going up as your age goes up.

Take home - Most financial planners do not favour most riders except premium waiver and, in some cases, hospital cash riders/plans. They instead advise one policy with a large sum assured, say, Rs 25 lakh-Rs 1 crore to take care of all needs. You, as an individual, need to evaluate the options on offer and then take a calculated decision.