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Do You Really Need That Extra Rider?

| 10/18/2012 9:00 PM Thursday


Whi
le insurance companies are launching plans with additional riders, you need to understand which riders to purchase, says Jay Sampat

KEY POINTS:
  • Riders are used to enhance basic life or health insurance policies. These can be added on to the policy according to one’s insurance needs.
  • Riders are considered a more economical way of enhancing a cover because the premium on a rider is purely for the insurance cover and not towards any savings or money back component.
  • Depending on the riders one selects, the premium will correspondingly increase. As per the IRDA regulations, the premium paid on a rider should not exceed 30 per cent of the premium on the base policy.
  • The rider is terminated when a claim for the benefits on the same is made or the term expires. There are usually no maturity benefits.

Many insurers have launched life insurance plans with additional benefits or riders that can be purchased for an additional fee along with the base policy. Earlier, the most popular riders were the critical illness, accidental death and dismemberment covers. The latest additions to the list are covers for women-specific ailments, surgeries and premium waivers, among other items. Along with life insurers, health insurance companies too are extending their coverage beyond hospitalisation costs.

Riders 101

  1. Riders are used to enhance basic life or health insurance policies. These can be added on to the policy according to one’s insurance needs. Riders are considered a more economical way of enhancing a cover because the premium on a rider is purely for the insurance cover and not towards any savings or money back component. Depending on the riders one selects, the premium will correspondingly increase.
  2. The premium on riders is eligible for deduction up to Rs 1 lakh under Section 80C. Health and critical illness riders are covered under the overall limits of Section 80D up to a maximum of Rs 15000. For senior citizens, this limit is Rs 20000.
  3. As per the IRDA regulations, the premium paid on a rider should not exceed 30 per cent of the premium on the base policy. Moreover, the benefit from each rider cannot exceed the basic cover.
  4. The rider is terminated when a claim for the benefits on the same is made or the term expires. There are usually no maturity benefits. However, the original policy continues and so does the premium on the basic policy.


Let’s take a look at some of the commonly offered riders.

Waiver Of Premium

This rider is generally seen in children’s plans, wherein future premiums are waived off if the parent expires during the policy term. A few insurers have now started offering this rider with their term and endowment plans as well, wherein the life cover continues even if the insured suffers from permanent disability and is unable to pay the premium.

Other variations include the premium waiver clause being triggered in the event of the policyholder's demise, applicable only in cases where the policyholder is not the life assured. For instance, a couple jointly purchases a policy towards which the husband has promised to pay the premium. Typically, the cover will cease to exist if the husband dies and the premium is not paid. However, if the couple has opted for this premium waiver rider, the future premiums will be waived off and the cover will continue.

Women-Specific Riders

Some of the new insurance policies have launched term plans to protect female policyholders against conditions like cancer of the female organs, pregnancy-related complications as well as for the treatment of children with congenital disorders. The USP of these riders is that such illnesses or conditions do not fall within the ambit of coverage of regular policies.

Surgery Benefits

Such policies work like regular critical illness riders, except that they come into effect only in the event of a surgical procedure. They fall under the category of defined benefit plans, where a single amount is paid out in case of a claim for surgery that the insured undergoes. Subsequently, the policyholder can choose to use this amount to meet expenses over and above the hospitalisation costs that are covered by the regular indemnity-based individual or group health policies.
In a nutshell, while your basic health insurance policy will pay for hospitalisation, the rider may help you with extra money that can be used for recuperation expenses or to replace the income lost during the treatment period.

Cash Towards Hospitalisation

A basic health insurance policy may pay for hospitalisation expenses, but policyholders often have to pay some extra money from their pocket for various reasons. For example, family members need to travel back and forth to the hospital to be with the patient. The hospital cash benefit rider hands out a pre-defined amount to the insured once a claim is made. Policyholders are free to utilise this sum for any purpose as per their needs.

Buying a rider at a discounted rate as part of a life or health insurance policy often seems a good approach at first glance. However, one needs to carry out a cost benefit analysis and carefully assess if such riders merit consideration. For instance, if the person is young, a traditional health insurance policy along with a personal accident cover should suffice. The individual may choose not to buy a critical illness cover as the probability of such illness is low in the early years of life.

Also remember that before considering optional covers, you should ensure that you have the basic term life and indemnity-based health policies in place.


 

Find More Articles on: DSIJ Magazine, Insurance, Personal Finance, Insurance, General Insurance, Health Insurance, Life Insurance, Product, Large Cap, PSU

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