Should you go for riders in term insurance?

Buying term insurance is a critical part of your financial planning; a must-have product which you must buy irrespective of your income level and risk profile. It makes sure that your loved ones are financially secure when you are not around.

The term plan is a pure risk insurance policy offered by insurance companies, covering the life of the policyholder for a specific time period. In case of death of the insured during the policy term, the death benefit is paid by the insurance company to the beneficiary. They offer large insurance cover for an affordable premium.

But term plans do come with add-ons. These ‘riders’ can augment your policy with the added SA, in certain cases, for small additions in premiums. There are others you can ignore as they are either too expensive or may not serve your purpose.

For instance, by just paying ₹308 extra along with the base premium for a term plan, a 35-year-old male can get the accidental disability rider that gives him an additional coverage for ₹10 lakh.

The riders available with online term plans in the market today are accidental death benefit, accidental disability benefit, accidental death and disability benefit, critical illness (CI), early claim on terminal illness, waiver of premium on accidental disability and/or critical illness, and cash for hospitalisation.

Here, we discuss the various aspects and features of these riders and their suitability, while purchasing your basic term cover online. We have considered the term plans provided by the top 13 life insurance companies for our study.

Accidental death benefit rider

This rider comes into play if the insured dies in an accident. The nominee will be paid an extra amount. This means the nominee will get the rider SA, over and above the basic SA. For instance, let’s assume that a person buys a term cover for ₹1 crore and an accidental death benefit rider for SA of ₹50 lakh. If he dies in an accident, the nominee will get ₹1.5 crore. If death occurs due to other reasons, the nominee will get the base cover of ₹1 crore.

In insurance parlance, ‘an accident is a sudden, unforeseen and involuntary event caused by external, visible and violent means’. Accidental death means death by or due to a bodily injury caused by an accident, independent of all other causes of death. Accidental death must be caused within 180 days of any bodily injury.

The rider must be in force at the time of availing the benefit. Insurance companies will not pay the accidental death benefit if death happens 180 days after the accident, or if it occurs under the influence of liquor, drug, or any narcotic. You have to refer to the policy documents carefully for the full list of exclusions while buying this rider.

Our take: Most term plans offer this rider with the coverage ranging from ₹50,000-2 crore. The rider premium for ₹10 lakh coverage is ₹560-860 based on the insurer. ICICI iProtect Smart, Edelweiss TotalSecure+, Bharti AXA Flexi Term, SBI Life eShield are some of the term plans offering this rider. The policy would be most suited for people who work under dangerous conditions or travel very frequently as part of their work.

Accidental disability benefit rider

This rider provides additional benefit equal to the rider SA on total and permanent disability due to an accident. Please note that the riders offered by the term plans are mostly meant for total and permanent disability, not partial disability. However, the conditions for getting the benefit vary among insurers.

The accidental total and permanent disability is defined as disability caused by bodily injury, which causes permanent inability to perform any occupation or to engage in any activity for remuneration or profits.

In many circumstances, a waiting period of six months is applied to pay the benefit to the policyholder. As per the norms, the disability that lasts for at least six months without interruption is considered as permanent disability. However, the waiting period is not applicable for loss of sight of both eyes and loss of two or more limbs.

Our take: This rider is essentially as important as the term cover. You get benefits when you are alive. Choosing this rider with regular income pay-out will serve you if you are disabled due to an accident.

The premium for this rider ranges from ₹177-472 for ₹10-lakh cover across insurers and is relatively cheaper than the premium paid for the accidental death benefit rider. Term plan insurers such as HDFC Life pay the benefits on a periodic basis — monthly 1 per cent of SA for 10 years. Some plans, including Edelweiss TotalSecure+, settle the benefit only as a lump-sum.

Canara HSBC OBC iSelect and Baja Allianz eTouch Online Term do not provide customisation on selecting the SA for this rider. You have to choose the same SA that you chose for the base plan.

Accidental death & disability benefit rider

This comprehensive rider provides additional protection benefits in case you meet with an accident, leading to dismemberment that is permanent/partial or death. The terms and conditions for accidental death and permanent disability due to accident are the same as that for other accidental benefit riders mentioned above.

Our take: Insurers Max Life, Aditya Birla and Tata AIA offer this rider. Full rider SA is given to the nominee in case of accidental death or permanent disability.

Tata AIA life and Aditya Birla Sun Life also pay a certain percentage of SA for partial disability for such dismemberment, say loss of single limb. Following the partial disability claim, the death benefit under these riders is reduced by the amount of claim paid. They charge rider premium of ₹2,360 and ₹1,682 respectively for ₹10 lakh coverage.

Though the rider premiums under Tata Sampoorna Raksha and Aditya Birla DigiShield Plan are relatively higher, one can opt for this as they cover the partial disability due to accident.

Critical illness rider

Critical illness (CI) rider provides a lump-sum benefit to the policyholder on diagnosis of critical illness. This will help in covering expenses associated with the illness. Normally, the policyholder will be paid the critical illness benefit amount at the first diagnosis stage itself. Some of the critical illnesses covered under the rider include cancer of a specified severity, first heart attack — of a specified severity, open heart replacement, primary pulmonary hypertension, chronic lung disease and kidney failure. Please note the waiting period of 90 days will be applicable for many CI, from the date of the commencement of policy.

Our take: Though it is advisable to buy a critical illness rider with the term plan, one must look a little deeper into this benefit before buying. There are certain points that you need to clarify — whether the claim is paid on diagnosis or upon producing the hospital bills and how many illnesses of various levels of severity are covered.

Many insurers cover only the specified severity conditions in the illnesses. The number of critical illnesses covered under the rider varies among insurers. For instance, Max Online Term Plus covers 40 critical illnesses, while Kotak e-Term Life and Aegon life iTerm Plus cover 37 and 36 critical illnesses respectively.

The premium charged under the rider ranges between ₹3,221 and ₹8,160 for ₹10 lakh coverage, among insurers. For instance, the rider from Kotak e-Term Life covers 37 illnesses and charges ₹8,160 while Bharti AXA Flexi Term covers 34 illnesses and charges ₹5,517. ICICI Pru and Bajaj Allianz Life provide an option called ‘Accelerated critical illness’. Under this, once the claim for CI is paid, the rider will cease and the SA under the base plan is reduced by the extent of CI benefit paid. Only the life insurance cover minus the CI cover stays in force. The subsequent term cover premiums are also reduced proportionately.

However, if you are looking for a comprehensive CI cover, you can look for standalone CI plans offered by general insurers, which come for the same cost, but may cover more illnesses.

Waiver of premium rider

All future premiums for the term cover will be waived off if the policyholder is unable to pay due to accidental permanent disability or on being diagnosed with CI.

Our take: This can be considered by those who do not have adequate savings. The rider ensures that your policy remains in force even if you are unable to pay your premiums. ICICI iProtect Smart, HDFC Life 3D Plus Life and Bajaj Allianz Life eTouch Online Term provide this waiver of premium on accidental permanent disability benefit, free of cost. HDFC Life 3D Plus Life provides waiver of premium on diagnosis of CI. Aegon life iTerm Plus, Max Online Term Plus, Edelweiss TotalSecure+ and Kotak e-Term Life charge a nominal cost ranging form ₹93 to ₹635 for this rider with base SA of ₹1 crore.

Early claim on terminal illness

Very few term plans offer this benefit, which generally comes free of cost. If the life assured is diagnosed with a terminal illness any time during the policy term, the entire base life cover will be paid to the policyholder/nominee/legal heir immediately. This helps the policyholder pay all his dues before his death. The base cover will terminate on payment of this benefit.

Terminal Illness is defined as the conclusive diagnosis of an illness that is expected to result in death of the life assured within six months. The term plans that offer this benefit include ICICI Pru iProtect Smart, HDFC Life 3D Plus Life, Aegon life iTerm Plus, Canara HSBC OBC iSelect, Aditya Birla DigiShield Plan and SBI Life eShield. ICICI Pru iProtect Smart covers AIDS too.

Free riders

Certain insurance companies offer some riders free of cost in their term plans. They are inbuilt with the base cover and no premium is charged separately for the additional benefits. The riders such as early claim on terminal illness, waiver of premium on accidental total permanent disability and waiver of premium on critical illness are offered free of cost by some insurers.

Waiver of premium on accidental total permanent disability is offered free by term plans such as ICICI iProtect Smart, HDFC Life 3D Plus Life and Bajaj Allianz Life eTouch Online Term. No cost is charged by HDFC Life 3D Plus Life for the waiver of premium on critical illness rider.

Our take: Getting some benefits for free along with the base cover is an added advantage. You have to compare the premium of the base cover while deciding the right plan. For instance, HDFC Life 3D Plus Life offers three rider benefits free of cost that are worth opting for, though the base premium of the plan is relatively higher. ICICI iProtect Smart scores on lower base premium and provides two rider benefits for free.

All the rider premiums are eligible for tax benefits under Section 80C of the Income Tax Act. The claim amount on death, accidental death, accidental permanent total disability and critical illness are eligible under Section 10(10D). Interestingly, the premium under the accidental death and disability riders enjoy tax benefit, while that for the standalone personal accidental policies sold by general insurers do not enjoy any tax benefits.

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