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What Are Insurance Riders and How to Choose Them in a Term Plan?

Insurance riders are additional features or benefits that can be added to a term insurance plan to enhance its coverage as per the policyholder's needs. Read the blog to learn the know-how of choosing the best rider for your term plan.

  • 6,312 Views | Updated on: Oct 06, 2023

Choosing the right insurance riders in a term plan requires careful consideration of an individual’s financial goals, lifestyle, and family needs. There are various types of riders available. Find all about them here.

Term insurance is one of the simplest and the most comprehensive means of financial security that can benefit the beneficiaries in case of the policyholder’s untimely passing. At low-cost premiums, one can easily secure themselves against potential life risks at a high sum assured.

However, when opting for a term insurance plan, you can increase its effectiveness by customizing it as per your individual needs. You can do this by opting for riders.

Type of Insurance Riders and Benefits

What are Insurance Riders?

Riders in insurance are basically contingent add-ons or supplementary benefits granted over and above a primary term policy in the event of a definitive eventuality.

They aim at expanding or amending the basic life insurance coverages at an additional cost. This means that they offer extended financial cover above the primary sum assured in a life insurance policy.

Insurance companies today offer varieties of riders to suit the multifarious needs of diverse individuals. With this, they offer greater risk protection to the policyholders and their beneficiaries. You may opt for distinct riders based on their importance and relevance.

In order to choose the most suitable riders, it is crucial to understand the different types of riders as well as the benefits of riders in insurance plans. Having said that, let’s have a look at the riders and their respective benefits.

Types of Riders in Insurance and its Benefits

Critical Illness Rider

Critical illnesses are usually not included in the term policies. Hence, this rider can be included within your insurance plan to cover your family against critical illnesses and ailments such as cancer, brain tumor, heart attack, etc. While covering the cost of medical expenses, these riders also provide tax exemptions under section 80D of the Income Tax Act.

Waiver of Premium Rider

Opting for this rider would ensure that the insurance plan remains active, irrespective of the policyholder failing to pay the premium amounts due to financial constraints. The effect of this rider could thereby redeem the insurance policy from lapsing completely.

Accidental Death Rider

The majority of life insurance policies provide coverage for accidental death. However, opting for this rider would further curtail the financial stress on the deceased’s dependents since it delivers an additional sum coupled with the sum assured disbursed by the insurance company.

Income Benefit Rider

For any family, losing the sole breadwinner could result in a major financial crisis. In order to avert such a scenario, the income benefit rider provides a fixed income for a specified period of about 5 to 10 years. This is offered to the beneficiaries over and above the sum assured.

Accidental Death Rider

The majority of life insurance policies provide coverage for accidental death. However, opting for this rider would further curtail the financial stress on the deceased’s dependents since it delivers an additional sum coupled with the sum assured disbursed by the insurance company.

Accidental Disability Rider

This rider takes effect in case of a temporary or permanent disability caused due to an accident. During such a time, the rider provides regular coverage for about 5-10 years in a pre-defined percentage range of the sum assured. However, it must be noted that this rider comes into play only if the disability ensues due to an accident.

Why You Must Buy Term Insurance Riders?

Term insurance is a popular form of life insurance that provides coverage for a specified term or period. It offers a death benefit to the beneficiaries of the policyholder in case of the policyholder’s untimely demise during the term. However, term insurance can also be enhanced with additional features called riders. These riders are add-on benefits that can provide additional coverage and financial protection to the policyholder and their loved ones.

Customized Coverage

Term insurance riders allow you to customize your insurance coverage based on your specific needs and requirements. They offer additional benefits that can be tailored to your individual circumstances, providing you with a comprehensive insurance plan that meets your unique financial goals. For example, you can add riders for critical illness, accidental death and disability, waiver of premium, and more, based on your priorities and lifestyle.

Enhanced Protection

Term insurance riders provide an additional layer of protection to your policy beyond the basic death benefit. They can offer coverage for events such as critical illnesses, accidents, and disabilities, which can have a significant financial impact on your life. With the right riders in place, you can ensure that you and your loved ones are protected against unforeseen events and have the necessary financial support during difficult times.

Cost-Effective

Term insurance riders are typically more cost-effective than purchasing separate insurance policies for each additional coverage. Adding riders to your existing term insurance policy is often more affordable than buying standalone policies for critical illness, accidental death, or disability. It allows you to enhance your coverage without significantly increasing your premium payments, making it a cost-effective option to get comprehensive protection.

Flexibility

Term insurance riders offer flexibility in terms of coverage and duration. You can choose the type of riders you want to add to your policy and the duration for which you want to avail of their benefits. For instance, you can choose a critical illness rider for a specific term, such as 10 or 20 years, to align with your financial goals. This flexibility allows you to customize your policy as per your changing needs and lifestyle.

Additional Benefits

Term insurance riders come with their own set of benefits that can provide you with financial support in various scenarios. For example, a critical illness rider can provide a lump sum payout upon diagnosis of a critical illness, which can be used to cover medical expenses, loss of income, or other financial obligations. Similarly, an accidental death and disability rider can provide a payout in case of accidental death or disability, which can help you cope with the financial consequences of such events.

Tax Benefits

Term insurance riders also offer tax benefits, which can help you save on your taxes. The premium paid for riders may be eligible for tax deductions under Section 80C of the Income Tax Act, 1961, which allows you to reduce your taxable income by the amount of premium paid. This can result in substantial tax savings, making term insurance riders a tax-efficient investment option.

Important Points to Know About Riders

Rider benefits are made available to provide maximum coverage to you. Adding riders to your plan helps in getting a life cover in situations that are not covered under the insurance plan. Some insurers ask you to add riders at the time of buying an insurance plan, but some insurers allow you to add them later. There are certain important conditions you should know before availing of a rider benefit as per IRDAI (Insurance Regulatory and Development Authority of India):

  • There is no limit as to the number of riders that can be added to your basic insurance plan as long as they are offered for your plan
  • After adding critical illness or health-related riders, the premium should not exceed 100% of the premium rate of a basic insurance plan
  • Premium should not exceed 30% of the premium rate of a basic insurance plan after adding different types of riders
  • Benefits received from each rider should not exceed the sum assured of the basic insurance plan
  • Tax benefits can be claimed for all riders, except health-related or critical illness riders, under Section 80CFor health-related and critical illness riders, the tax benefit can be claimed under Section 80DRider benefits or claims received are exempt from tax deductions under Section 10(10D)

Last Words

While you may not possess control over every imminent uncertainty, you can definitely gain control over the financial security of yourself and your loved ones by choosing the most appropriate riders in your insurance plan.

Key takeaways

  • Opting for an appropriate rider would ensure that the insurance plan remains active, irrespective of the policyholder failing to pay the premium amounts due to financial constraints.
  • The income benefit rider provides a fixed income for a specified period of about 5 to 10 years.
  • Term insurance riders allow you to customize your insurance coverage based on your specific needs and requirements.
  • Term insurance riders are typically more cost-effective than purchasing separate insurance policies for each additional coverage.

FAQs

1

What is a term insurance rider?

A term insurance rider, also known as a term rider or a term insurance add-on, is an additional coverage option that can be attached to a primary term life insurance policy. It provides extra benefits or features beyond the basic death benefit of the primary policy, and can be customized to suit the policyholder’s specific needs. Term insurance riders typically require an additional premium to be paid by the policyholder, but they can enhance the overall protection and flexibility of the policy.

2

What are the different types of term insurance riders?

Term insurance riders are additional features or benefits that can be added to a basic term life insurance policy to enhance its coverage. These riders provide policyholders with additional protection or options that can be tailored to their specific needs. Here are some common types of term insurance riders:

  • Accidental Death Benefit Rider
  • Critical Illness Rider
  • Waiver of Premium Rider
  • Disability Income Rider
  • Return of Premium Rider
  • Child Term Rider
  • Accelerated Death Benefit Rider
  • Long-Term Care Rider

3

What type of diseases are covered under critical illness rider?

The diseases covered under a critical illness rider may vary depending on the insurance company and the specific policy, but generally, critical illness riders typically cover a range of serious illnesses that can significantly impact an individual’s health and well-being. Some of the common diseases that are typically covered under a critical illness rider include

  • Cancer
  • Heart diseases
  • Stroke
  • Organ transplant
  • Multiple sclerosis
  • Major organ failure
  • Paralysis

4

Who can purchase a term insurance rider cover?

A term insurance rider cover can typically be purchased by the policyholder who owns an existing term life insurance policy. A term insurance rider is an additional feature or benefit that can be added to a base term life insurance policy to provide additional coverage for specific needs or situations. The policyholder has the option to include one or more riders to customize their term life insurance policy based on their individual requirements.

5

Is it good to buy rider-in-term insurance?

Riders, also known as add-ons or endorsements, are additional benefits that can be added to a term insurance policy to enhance its coverage. Whether or not it is good to buy riders in term insurance depends on your individual needs, financial situation, and risk tolerance.

Here are some factors to consider when deciding if buying riders in term insurance is a good idea:

  • Personal and financial circumstances
  • Coverage gaps
  • Budget
  • Risk tolerance
  • Policy flexibility

6

What is the best age to buy term insurance?

The ideal age to purchase term insurance depends on various factors, including your financial goals, dependents, and overall health. Term insurance is a type of life insurance that provides coverage for a specific term, typically ranging from 10 to 30 years. It offers a death benefit to your beneficiaries if you pass away during the policy term.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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