How you can enhance insurance with add-ons

Term insurance has a simple premise amongst various insurance products — providing life cover against death with sum insured (SI) in return for yearly premiums. Premiums for ₹1 crore SI are relatively low at ₹10,000-12,000 annually for a non-smoking male of 30 years. The basic cover of term insurance can be enhanced with 7-8 different add-ons, significantly enhancing its utility for everyone. Add-ons grouped into family-related ones, the ones supplementing basic health insurance and insuring against unforeseen events, can be considered on a case-by-case basis.

Family related add-ons

Securing a cover for your spouse and creating an additional cover for your child’s needs are beyond the scope of SI and can be achieved with add-ons. Term insurance for one’s spouse need not be a separate policy. For an additional premium which ranges from 50-75 per cent of the original premium, a similar cover for one’s spouse can be created.

Bajaj Allianz’s term plan has a Joint Life Rider add-on which adds 75 per cent to the primary premium and provides term insurance to the spouse. A similar add-on from PNB Metlife costs less than 50 per cent of the primary premium. The latter also waives off all future premiums on death/disability or critical illness to the primary life insured, compared to the former that waives premiums only on death.

On the other hand, Edelweiss Tokio provides an extra 50 per cent cover for the spouse starting at just ₹58 for the add-on.

For child benefit option, these three insurers and another one, Canara HSBC OBC, provide a child support benefit (CSB) add-on. Upon termination of the policy on death of the primary life insured, an additional CSB-related SI will be paid alongside the basic SI. The add-on costs 25 per cent more with term insurance from Canara HSBC, 5 per cent with PNB Metlife, 10 per cent with Bajaj Allianz and 6 per cent with Edelweiss Tokio.

The SI in this segment is different from that for the life insured and is dependent on each individual policy, and hence the different pricing.

Critical illness covers

Term insurance is largely not triggered upon diagnosis of a critical illness (CI). This is seen as one of its shortcomings compared to health insurance. Most insurance providers have hence added a CI rider which provides an amount on diagnosis of an illness which falls under their CI definition.

For instance, HDFC Life provides ₹5 lakh on the policyholder being diagnosed with any one of 19 critical illness with an add-on which costs 15 per cent more, while term insurance from Max Life costs 25 per cent more to cover 64 illnesses and providing the same amount.

Edelweiss Tokio, on the other hand, provides ₹10 lakh to cover against 36 CIs with its rider which costs 62 per cent more than the basic premium. PNB Metlife has the most comprehensive package in this regard.

An accelerated payout add-on which costs 75 per cent more,, provides 25 per cent of the SI upon diagnosis of any of the covered 50 CIs.

Few other insurers including Max Life, Tata AIA and Aditya Birla Sun Life provide early payout of SI on diagnosis of a terminal illness (different from critical illness) as a no cost option.

An existing health insurance makes this add-on an incremental cover for critical illness, but the need for a comprehensive health insurance cannot be served by term insurance even with this add-on.

Accident disability, death

In case of permanent disability, term insurance premium can be waived off either as a no cost feature (ICICI Prudential) or as an add-on which costs in the range of ₹500-800 for most other providers. Some providers also tag critical illness condition with the waiver of premium add-on, considering a policyholder’s inability to meet yearly premiums in both cases.

Meeting hospital expenses in case of an accidental death or even disability can place significant financial burden on one’s family, essentially negating the benefit of term insurance payout (in case of death).

Extra payout, in case of accidental death, is a popular add-on featured by most insurance providers. For an additional sum of ₹500-1,000 most providers ensure additional ₹10 lakh in case of accidental death. HDFC Life’s term plan provides an additional ₹1 crore payout in case of accidental death but the add-on would increase premium by 35 per cent. A similar add-on to cover for accidental disability is also available with costs in the range of ₹200-500 to provide an additional sum insured of around ₹10 lakh.

Based on one’s needs and circumstances, the utility of term insurance can be enhanced by purchasing the right add-on to complement the basic life cover.

COMMENT NOW