Types of Riders/Add-ons in Life Insurance and Which One Should You Opt For?

The basic life insurance policy does not provide extensive coverage. Thus, insurance companies offer riders to the policyholders to cover the needs not included in their base plans. These customisable benefits can help extend policy coverage based on the insured’s requirements for a nominal additional premium For instance, if you have a family history of cancer or any cardiac issues, you can choose the critical illness rider along with your life insurance policy. Keep reading to learn more about the types and benefits of these riders!

Types of Riders Available with Term Insurance Plans

Here are some of the riders that you can purchase with a life or term insurance policy:

1. Critical Illness Cover

If the policyholder is diagnosed with any critical illness, such as cancer, any kind of tumours, cardiac diseases, etc., they can purchase a critical illness rider. It offers additional coverage for their treatment or family expenses at the time of need, acting as an effective income replacement plan.

2. Accidental Permanent and Total Disability

If the policyholder becomes utterly disabled due to an accident, it is called accidental permanent and total disability. For instance, if an individual loses both legs and arms or one leg and arm, along with his eyes, in an accident, it is considered a permanent disability. In this situation, a person becomes incapable of earning and running a family. To gain financial assistance in such scenarios, the policyholder can purchase this rider to cover their family and treatment expenses. Some policies also allow the insured individual to claim the sum assured in monthly instalments.

3. Accidental Death Benefit

This rider covers the financial requirements of an insured’s family in case of the holder's death due to an accident. The policyholder’s family receives the sum assured from the insurance company, which they can utilise for funeral expenses, medical bills, etc. Even if the insured does not die immediately after the accident, the nominee can claim insurance benefits under the accidental death rider to pay for the insured’s treatment. However, this needs to be done within 120-180 days of the event.

4. Terminal Illness Cover

If the policyholder is diagnosed with any terminal illness, like a brain tumour, paralysis, organ failure, etc., having a terminal illness cover enables them to claim the sum assured immediately. Now, most terminal illnesses lead to the life loss of the patient within 6 months or so. In such a situation, the family incurs several expenses, from treatment costs to basic needs. This rider helps cover all such costs, easing the financial burden. However, terminal illness
coverage is only activated after diagnosis and confirmation of short life expectancy.

5. Waiver of Premium

This rider ensures that a life insurance policy remains active if the policyholder cannot pay premiums due to disability. It is a very popular rider, especially in the case of child plans, as it guarantees the continuation of the policy until maturity. This enables individuals to ensure that even if they cannot pay premiums due to disability, the nominee still receives the benefits. Waiver of premium riders only come into play when the insured has been disabled for at least six months or diagnosed with a critical, life-threatening illness.

6. Income Benefit Rider

The income benefit rider offers a monthly payout to the family upon the policyholder and demise. It replaces the insured and income, helping the family manage finances and cover essential bills without struggling.

Additionally, it provides a steady financial support system during a difficult time, supplementing the traditional lump-sum payout.

Role of Riders in Life Insurance and Term Insurance Policies

Here are some of the notable benefits of buying riders with your life insurance policy:

1. Flexibility

A life insurance rider offers significant flexibility, allowing policyholders to customise their coverage according to individual needs. For instance, an individual who travels a lot can take out an accidental death rider to financially safeguard their family in case of their unfortunate demise within the policy period. This customisation ensures that the policy effectively addresses specific financial concerns and protects the insured.

2. Provides Extra Coverage

Adding a rider to your existing insurance plan enhances coverage. For instance, a critical illness rider provides a lump sum upon diagnosis, helping cover rising medical costs, household expenses, loan repayments, and other financial obligations. This additional benefit ensures comprehensive protection and financial support during challenging times.

3. Offers Tax Benefits

You can benefit from tax deductions on rider payments under the Income Tax Act 1961. Section 80C provides deductions for amounts paid towards an accidental death rider, while Section 80D offers benefits for premiums paid on a critical illness rider. This adds tax deduction benefits to your insurance coverage.

4. Affordable

Comprehensive coverage can be achieved without purchasing a new insurance plan, making riders more cost-effective than separate policies. By simply paying an additional premium, you can enhance your coverage while keeping expenses low, providing greater financial protection at an affordable price.

You now have a clear idea of the benefits of adding riders to your basic life insurance policy and their various types. You can decide which one best aligns with your needs. However, riders come with extra premiums and may have some associated terms and conditions. So, consider these aspects before adding them to your life or term insurance policy.