Choosing insurance riders

After having chosen the right life insurance policy for securing your future, there is still something you can do to strengthen it and make it comprehensive.

We are talking about the ‘riders' that come with most life insurance policies that provide added cover for a wide range of unfortunate happenings. To use an insurer's version, a rider is a add-on cover ‘riding' on a policy

Here we explain the different riders that are available from insurance companies, the costs, regulations governing riders and finally the added tax benefits that accrue by taking them.

Of course, you may not need all of these riders, but you must consider one or two based on your needs.

Deciphering riders

All types of life insurance such as term, endowment, whole-life and unit linked plans come with some type of rider(s) or the other.

These include riders for accidental death or disability, critical illness, surgical care, hospital care and waiver of premium among others.

At the time of taking your regular life insurance policy, you are expected to indicate the rider that you wish to have as an addition. Most of these riders are self explanatory and promise a certain sum in the case of an eventuality.

For example, if you take a term plan for Rs 10 lakh, by taking an accident rider, your nominee would get up to twice the sum insured (the total of basic policy and the rider amount) should you meet with an unfortunate fatal accident.

Most companies keep a rider sum insured as well. That is, there may be an upper ceiling in some cases in the payment made.

In the case of disability or injury due to accidents, for example, a fixed percentage of the rider sum insured is paid depending on the intensity of the eventuality.

In the case of critical illnesses (such as kidney failure or cancer and the like) the entire rider sum insured is given by the insurance company to the person and the rider as well as the main policy is closed in most cases.

The waiver of premium is an interesting feature.

In case a policyholder is unable to pay the premiums due to disability or critical illness, the insurance company would pay all the future premiums of the main policy as well and keep it alive

Since riders are an added feature to the main policy, the costs aren't generally very high, as they cover only incremental risk.

Costs and suitability

The insurance regulator has stipulated that the premium on the rider(s) should not exceed 30 percent of the premium paid for the main product. This limits any scope for overcharging you for taking added benefits.

Of course, it must be added that as with the main policy, taking the riders also should be done early to lower the premium rates. Most insurance companies ask you to specify the riders at the outset itself.

For example, the rider premium per thousand sum insured would be Rs 2.5-3 if you are 25. If you opt for a policy with the same rider at 35, that figure goes up to Rs 5.5-6.

You may not need all the riders associated with a main policy. But you may want to add riders on accident and waiver of premium, as there is uncertainty during commute to and from office every day.

For other benefits, you can probably take medical insurance instead.

Finally, there are tax benefits too for taking riders on insurance.

It is known that the premiums paid for the main insurance policy is allowed as deduction against your income under section 80C.

If you take riders for critical illness, surgical care etc, the premiums that you pay for these are allowed as added deduction under section 80D.

This section allows for deduction for premiums paid to medical insurance policies.

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