Why should one take riders with term life insurance

Riders are add-on covers insurers provide to enhance the scope of a life policy. Riders cover risks that are beyond the scope of the main life policy, resulting in a more comprehensive protection. The most common riders cover critical illness (or dreaded diseases) or personal accident (or accidental death and dismemberment). These add-ons step in during situations where the main life insurance policy may not come into play. Riders can be blended, for an additional cost, according to your present and future insurance needs. However, buying a rider means paying an extra premium for this supplementary benefit. Normally, this premium is low because relatively little underwriting is required.

When a claim for the benefits of a rider is made, it can result in the termination of the rider, while the original policy continues to insure you as usual

ADB (Accidental Death Benefit) rider is a very cheap rider. This essentially means that if the death of the insured was due to an accident, an additional amount is paid. For low sum assured (50L or below) a ADB rider of 10 L implies a higher payout to the beneficiaries, if death was due to an accident. For high sum assured (1.5-2cr), a rider of this nature for 10-20 Lakh is really not meaningful, since it doesn’t make a significant difference to the claim (about 5-10%). However, since it is very cheap, one can just include it. The sum assured is limited to 10L for Kotak and 20L for some others

The PDB (Permanent Disability) rider is also very cheap. It is more useful than ADB, because it compensates for disabilities caused during an accident (things like paralysis, loss of limbs, etc.). The difference is that the person is still alive and has suffered a disability and life is impacted. This rider is therefore very useful and also cheap.

CI (Critical illness) riders, in the opinion of many, is as important as the term insurance itself because it deals with situation where the insured is alive and is facing high outflows while being confined. This cover pays a lump sum fixed amount if the insured develops certain pre-specified diseases such as cancer, stroke, kidney failure etc.  The amount is paid within 28 days of diagnosis of the critical illness. This amount is paid in addition to any benefit you may get on your group medical and other medical insurances. Many of these diseases (such as cancer) do not require constant hospitalization and would therefore not be covered under other medical policies. Further these diseases require extended medication which are usually very expensive.

It is much more expensive than accidental death benefit riders. One needs to choose the sum insured for the CI rider with thought and care, taking into account the cost escalation. We would recommend a minimum cover of 6-8L, though 10-12 lakh cover should definitely be considered. CI is riskier for life insurers and they internally put a cap on how much they can offer. Kotak limits it to 20L, DLF allows up to 25L

Critical Illness rider is strongly recommended by us whenever you buy a term life policy. If the policyholder is diagnosed with a critical illness, the life cover will be of no help as it does not cover funding of the treatment cost. On the other hand, if it is topped up with a critical illness benefit rider, the insurer will hand out a lump sum upon diagnosis of such an illness, unlike a health insurance policy.

You must understand that this is different from a mediclaim policy and is not its substitute. A critical illness policy will not pay for your actual medical expenses. It will pay you a lump sum if you suffer from a critical illness. This means that you should have an ‘illness’ which is also ‘critical’. The policy documents will specify the diseases that are considered critical. After you are diagnosed with an illness, in most cases, you must survive for a minimum number of days after the diagnosis, usually 28-30 days, to be eligible for the claim.

 

An indicative list of critical illness covered by riders is given below. Different insurers will have varying cover, and you would need to look closely at the policy document. You must also closely look at the exceptions list provided by a policy, which will differ from insurer to insurer.  However, most will cover the list given –

The list of critical illnesses is:

• Heart Attack

• Cancer

• Stroke

• Coronary artery by-pass graft surgery (CABG)

• Kidney failure

• Major organ transplants

• Paralysis

• Loss of limbs

• Aorta surgery

• Major burns

• Heart valve surgery

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