Chandigarh-based Arjun Chaudhary met with an accident resulting in a fracture that required three months of bed rest. The prolonged absence from work resulted in loss of pay. Arjun's health insurance policy only covered hospital expenses and did not offer income replacement. As a result, meeting his family's monthly expenses became a difficult task. A life insurance policy with a personal accident rider covering temporary disability would have been an answer to Arjun’s problems. Such riders offer a fixed sum to the insured person for a few weeks to months.
Life insurance policies are purchased with a vision to protect the financial future of the family in case of the unexpected demise of the breadwinner. Thus, they act as an income replacement device. A term insurance policy basically offers a death benefit—a lump sum to the family of the insured. Hence, such policies are the best tools to compensate for the early loss of an earning member.
However, purchasing an insurance policy merely to protect one’s family from one's death does not serve its purpose entirely. Apart from death, there are sundry other unanticipated threats, like total or partial disability due to an accident and critical illness. Thus, one must be equipped to face these challenges and have enough backing to guard against them.
The probability of risks varies from person to person, and so do insurance needs. Insurance riders are one of the most effective ways to customise one’s life insurance plans and thus opt for complete coverage. Riders are one of the distinctive features of term insurance that offer added protection and coverage for a marginally higher premium. Riders are available for diverse purposes, and they can be added to the term insurance policy to garner extended benefits.
Here are some of the most vital riders:
WAIVER OF PREMIUM
Several insurance policies cease to be active if you are unable to pay premiums for a specific period of time. This rider ensures that your policy does not become inactive if you default on a payment owing to disability. In such cases, the future premiums would be waived, but your policy remains.
CRITICAL ILLNESS
This rider offers a supplementary cover for critical illnesses like heart attack, stroke, cancer, kidney failure and paralysis. This rider goes a long way in protecting policyholders from any major medical expense and ensures that medical attention is not deferred due to lack of finances. Policyholders become eligible to receive a predetermined lump sum as soon as a critical illness is diagnosed.
DEATH IN AN ACCIDENT
Death of an earning member may burden the family with medical bills and unfulfilled financial liabilities. This rider offers the family additional benefits in such an eventuality.
PARTIAL AND PERMANENT DISABILITY
There may be times when policyholders suffer from partial or permanent disability owing to accident. In such scenarios, several policies pay you a percentage of the sum assured for the next five to ten years. This is to compensate for the possible loss of income because of the disability. Total disability gives you full sum assured, while partial disability gives partial sum assured. You can, thus, rely on this rider to substitute your regular income source.
INCOME BENEFIT RIDER
The aim of this rider is to provide regular income for the family of a deceased policyholder. Payment is usually made as some percentage of the total sum assured, and acts as an additional income for dependents. If an individual adds this rider, the policyholder’s family gets an auxiliary income for five to 10 years along with the regular sum assured. For instance, 10 per cent of sum assured for the subsequent ten years.
Riders are great financial tools to assist you to plan prudently for adverse and unanticipated events in your life. These events may not happen, but, planning for them is the best strategy to keep yourself and your family safe at all times and under all circumstances.
Anil Kumar Singh is chief actuarial officer, Aditya Birla Sun Life Insurance.