Here's a scary fact:
Over 1.55 lakh people died in road accidents in India in 2021, which equates to an average of 400 deaths per day and 18 per hour.
However, not exactly a surprise, is it?
Accidents have become a common occurrence in today's world as economic activities have expanded, population in cities have exploded and public transportation infrastructure is still catching up. However, another aspect of accidents that is a definite concern (apart from the rash driving, of course) is the financial trauma that loved ones are left with after a family member's fatal accident.
And this is true whether the person in question passed away on-spot, he/she has to be hospitalized, or if he/she has a partial or complete disability. While in the first case, the financial crunch would be due to loss of income, in the latter cases, the treatment charges will quickly drain one's finances (plus there is the concern of a compromised source of income in this case too).
And this is where the accidental death benefit rider on a term insurance plan comes to the rescue.
While term insurance on its own offers financial aid to loved ones in the case of the death of the policyholder, an accidental death benefit rider offers additional financial cushioning. Considering that the rider demands a low premium and offers a substantial financial security net, availing of this is a smart financial move.
The accidental death benefit rider offers financial support to the Insured person’s family in the event of an untimely death brought on by accident during the coverage period. Term insurance policies frequently include the extremely popular and widely used accidental death benefit riders.
This article will go in-depth and explain the accidental death benefit rider, how it functions, why you should add it to your term insurance, etc.
What is an Accidental Death Benefit Rider?
Accidental death benefit riders are add on plans on your term insurance which boost the payout significantly under policyholder’s untimely demise due to an accident.
What are the Features of Accidental Death Benefit Rider in Term Insurance?
- The percentage of the amount disbursed to the family varies depending on the insurance company and is based on the initial sum assured before acquiring the policy.
- There may be a cap on the maximum sum assured in specific circumstances.
- Throughout the policy, the premium for a term insurance policy's accidental death benefit does not change.
- There is a very common assumption that the sum assured is only paid out if the policyholder dies due to an accident and not from any other cause. It’s not true. The beneficiary is still qualified to receive the fundamental term plan benefits. This means that the beneficiary would still receive the basic sum assured if the policyholder died for a cause other than an accident.
- If the insured member passes away due to an accident, the rider only guarantees an additional sum in addition to the basic sum assured.
- The accidental death benefit covers other types of accidents besides auto accidents, such as industrial accidents and plane crashes.
- The rider provides extra financial cushion in the event of an untimely demise of the policyholder by providing coverage beyond the sum assured.
Benefits of Accidental Death Benefit Rider
Greater compensation for your family
In some circumstances, the accidental death benefit rider may pay twice as much as your initial policy's benefit, increasing your total payout. This additional money can meet your family's daily needs to final expenses.
Tax exemptions are available for payments made toward a term insurance policy and its riders. Under Sections 80C and 10(10D) of the Income Tax Act of 1961, the life assured may receive tax exemptions of up to Rs. 1,50,000 Lakh, provided that the premium payment does not exceed 10% of the sum assured.
By acquiring the accidental death benefit rider, the life guaranteed can receive double tax benefits because the premiums paid for the rider are eligible for tax exemptions under Section 80D of the Income Tax Act of 1961.
Even with its perks, the accidental death benefit rider has some limitation that demand attention:
The ADB rider may not be the best choice for some policyholders who already have accident insurance, such as workers' comp or disability insurance, or for those who are less likely to be involved in accidents. Instead, investing in a term plan for higher coverage may be a better option.
Restricted accident coverage:
The ADB rider may only cover certain types of accidents, like those that happen during car or plane rides, and may not cover accidents during extreme sports or other high-risk activities.
What Is Considered Accidental Death?
According to insurance companies, an incident simply occurs due to an accident. Accidental deaths include those caused by motor vehicle collisions, slips, choking, drowning, machinery, and other uncontrollable events. In a fatal accident, death must often occur within the time frame allowed by the policy.
Acts of war and deaths brought on by illicit activity are often excluded from the definition of accidents. Also not included is death due to disease. Any risky pastimes that the insured habitually partakes in—such as racing cars, bungee jumping, or other dangerous activities—are frequently also prohibited.
Eligibility Criteria of Accidental Death Benefit Rider?
How Do Accidental Death Benefit Riders Work?
Most accidental death benefit riders will give your family an additional payout over the death benefit from your standard life insurance policy. Since this additional payment might occasionally double the amount of money your family receives, this type of rider was formerly referred to as a double indemnity rider. Family of the policyholder will get the money as soon as the insurance provider certifies that his demise complies with the terms of the rider.
The cost of adding an accidental death benefit rider will probably increase your premiums or payments because it expands the coverage under your policy. But by including such insurance now, you can spare your family from having to deal with substantial anticipated costs in the future.
Assume, for instance, that you had a term life insurance policy with a Rs 1 crore death benefit and a Rs 10 lakh accidental death benefit rider. If the policyholder dies in an accident during the policy's term, your family will receive Rs 1 crore in the sum insured for the term plan and Rs 10 lakh for the accidental death rider.
It's crucial to realise that even if the insured person dies due to something other than an accident, the base sum assured will still be paid. That equals one crore in the scenario above.
A term plan with an incidental benefit does not increase the value of the term insurance policy. It merely strengthens it.
Exclusions for the Accidental Death Benefit Rider
The following are some of the main exclusions of the accidental death benefit rider:
- While serving in the military or during a time of war
- Civil commotion
- Suicide and self-inflicted injuries
- Adventure sports such as skydiving, river rafting, and scuba diving
- Death due to a drug or alcohol overdose
- Involvement in an aviation or aeronautical operations-related accident
Who should opt for the accidental death benefit and disability rider?
Term insurance with accidental benefits is often advised for the family's main breadwinners, who frequently travel for work and engage in work that are more exposed to risks. Accidents, however, are unforeseen occurrences that can happen to anyone. Choosing the accidental death benefit rider while purchasing a term insurance policy is a good choice. This is because tragic accidents can still happen to anyone, including people who do not routinely travel or work in hazardous environments. It would be best to be cautious while adding this rider to your term insurance policy.
In conclusion, a life insurance policy should always include an accidental death benefit rider. In the event of a fatal disaster, it offers a further layer of security for policyholders and their families. It is reasonably priced and can give people who need it the most a sizable financial safety net. It is always advised to read and comprehend the rider's terms and conditions before purchasing a life insurance policy. Remember that the accidental death benefit rider can be paired with other kinds of riders to build a comprehensive insurance plan that satisfies the policyholder's unique needs. Ultimately, it's a smart investment that can give loved ones comfort and financial stability in a fatal tragedy.
Frequently Asked Questions
- What are life insurance riders?
You can add riders—optional components—to a life insurance policy. Although adding riders can raise your premiums, they provide greater protection than a policy would by itself, allowing you to contribute to securing your family's financial security. Adding life insurance riders can further tailor your policy to meet your specific needs. You can customise the coverage to suit your needs by adding different riders to the same policy.
2. Is accidental death covered in term insurance without a rider?
Term insurance covers for all eventualities. The promised sum will still be paid even if this rider is not included. This rider boosts the payout in case of the death due to accidents. They have a specific use case and you need to evaluate ADB rider vs higher coverage.
3. What are the five leading types of accidental death?
The most frequent causes of unintentional death include car accidents, slips, falls, drowning, poisoning, and fires and burns.
4. Which rider is best with term insurance?
All riders have different use cases but some have proven more utility for higher number of use cases considering modern lifestyle & different risks we are exposed to. The crucial six riders for term insurance are shown below, along with the benefits they provide
- Accidental Death benefit
- Accidental disability rider
- Critical illness rider
- Accelerated death benefit rider
- Income rider
- Waiver of premium