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How Do Riders Work In Term Insurance

How Do Riders Work In Term Insurance

Riders Work In Term Insurance

What is Term Insurance?

Term insurance plan is a life insurance product offering the policyholder financial coverage for a specific period of time. If the individual who is insured passes away during the policy period and when the policy is active, the beneficiary receives the death benefit. Furthermore, term insurance plans in the initial periods are considerably less expensive than permanent life insurance policies, as they do not have any cash value. To state it simply, through term insurance plans (pure life cover), the only value is the guaranteed death benefit received by the beneficiary, while other life insurance plans, also called endowment plans come with an additional built-in savings component.

Thus, term insurance plans are basic plans, and are more affordable when compared to other life insurance policies. This enables policyholders to choose a larger life cover at lower premiums when compared to endowment plans. Furthermore, while many term policies provide level premiums for the entire term plan, there are other policies that offer increasing or decreasing benefits over the course of the duration of the policy, while also providing the option to convert the term policy to a permanent insurance plan.

Types of Term Insurance Policies

Other than level term policies, there are other term policies policyholders can opt for, depending on their individual requirements.

Convertible Term

Convertible term plans allow policyholders to convert their term insurance policy, which might have a few more years left to expire into a permanent insurance plan.

Increasing Term

Few policies allow policyholders to increase the death benefit after a specific period. While this results in the premium increasing, policyholders can pay lower premiums initially.

Decreasing or Mortgage Term

In a decreasing term (also called a mortgage term) policy, the coverage decreases over the duration of the term at a predetermined rate. The premiums usually remain constant throughout the term (and are less than premiums for term policies), with the reduction in coverage usually occurring monthly or annually.

Annual Renewable Plans

While term insurance policies are renewed each year with higher premiums, annual renewable term plans ensure that the coverage is approved every year. However, these plans needn’t necessarily be cost-effective for all the policyholders, with the costs increasing over time.

What are Riders?

Term insurance riders are amendments or attachments made to a term insurance plan, giving the policyholder additional coverage, thereby enhancing the policy’s utility. Riders provide several additional benefit apart from the death benefit offered by the term insurance policy.

While most term insurance policies provide the benefit of riders, their costs and conditions vary in accordance with the term policy, premiums and the company. Furthermore, some riders come with term insurance plans as a package deal, while other riders are to be purchased additionally by the policyholders by paying additional premiums. The premiums paid for riders are typically less than the premiums paid for term insurance policies, while the sum assured of riders is also less than the insurance cover.

Types of Riders in Term Insurance Policies

There are six important riders that provide additional benefits to policyholders, while purchasing a term insurance policy.

Accidental Death Rider

If the insured passes away during the policy term because of an accident, this rider pays additional sum assured to the beneficiary, which is calculated on the original sum assured by the term plan. The percentage of the additional sum might vary from one company to the other, and there could also be a cap on the maximum sum assured on the accidental death rider. The premium however remains constant for the entire duration of the policy period. This rider is applicable only in the case of an accident, and if the insured passes away due to any other reason, the beneficiary will receive the sum assured by the term plan.

Critical Illness Rider

Critical illness riders protect policyholders from major illnesses, including cancer, heart attack, kidney failure and paralysis to name a few, which would otherwise require individuals to spend exorbitant amounts in medical costs. These riders compensate policyholders with a lump sum amount if they are diagnosed with a medical illness which is pre-specified in the policy. It is thus imperative that the policyholder reads the policy document carefully, and knows about the illnesses covered in the rider.

Accelerated Death Benefit Rider

If the policyholder opts for this rider, and has been diagnosed with a terminal illness, the accelerated death benefit rider allows for their family to get a part of the sum assured in advance, and this amount can be used to cover medical expenses. This rider comes at a low cost, and specifies the percentage of sum assured which would be paid in advance, with the remaining amount given to the beneficiary following the death of the policyholder.

Accidental Disability Benefit Rider

The disability benefit rider covers the risk of the insured becoming partially or permanently disabled after meeting with an accident. Most policies pay the disabled policyholder a percentage of the sum assured for a period of five to ten years following the accident. As such, these riders can be considered as an income source for the individual and their family members. This rider is often combined with the accidental death rider, and only comes into force if the policyholder becomes disabled following an accident.

Waiver of Premium Rider

This rider comes in handy if the policyholder is no longer able to pay premiums, either due to disability or income loss. With this rider, the policy remains active while the future premiums are waived off. Without the rider, considering the insured is no longer able to pay premiums either due to income loss or a disability, the policy expires, and the beneficiary will not receive any death benefit.

Income Benefit Rider

This rider is designed as a way to generate income after the death of the policyholder. With the inclusion of this rider in the insurance plan, the policyholder’s family will receive additional income every year, for the next five to ten years after the death of the insured, apart from the sum assured in the term plan.

Term insurance plans have become popular because of their affordability and lower premiums when compared to other life insurance policies. Riders enable policyholders to secure the futures of their family members in the event of an unfortunate accident, resulting in a partial or permanent disability, or their death.

So if you too would like to avail a term insurance plan to protect the financial future of your loved ones, consider availing the iSelect Smart360 Term Plan from Canara HSBC Life Insurance. This term insurance plan provides policyholders with options for enhanced coverage and various add-on covers, while lowering their tax liabilities.

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