Term insurance is primarily designed to secure your family’s finances in the event of your untimely demise — whether due to illness, natural causes, or even an accident – especially an accident. In fact, according to the Ministry of Road Transport and Highways of India, there have been over 460 accidental deaths every day. This shows just how unpredictable life can be and why you need a good term insurance plan.
While a standard term plan already covers accidental death, an Accidental Death Benefit (ADB) Rider offers an additional payout on top of the policy’s base cover amount if you pass away due to an accident. This extra benefit can be especially valuable if such a tragedy leaves surviving family members facing immediate and significant financial burdens — such as unpaid debts or disrupted long-term plans. But is this rider right for everyone? What exactly is an Accidental Death Benefit Rider, and how does it work? Let’s take a look at this in detail.
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What is an Accidental Death Benefit (ADB) Rider in Term Insurance?
An Accidental Death Benefit Rider is an add-on that you can purchase along with a term insurance plan. This ensures that if the policyholder’s death is caused by an accident, the nominee receives an additional payout over and above the base cover amount.
For example, let’s say a policyholder has a ₹1 crore term insurance policy and opts for an Accidental Death Benefit Rider worth ₹50 lakh. If they pass away due to a natural cause, such as age-related complications, their nominee will receive only the base cover amount of ₹1 crore. However, if the death occurs due to an accident, the nominee will receive the base amount of ₹1 crore plus the additional ₹50 lakh from the rider, bringing the total payout to ₹1.5 crore tax-free.
Given that accidents are unpredictable, having an additional payout ensures that the family has sufficient resources to cover expenses, such as loan repayments, daily household expenses, children's education, etc.
How Does the Accidental Death Benefit (ADB) Rider Work in Term Insurance Policies?
The ADB Rider is an addition to the base term insurance plan. The cause of death determines whether the insurer will pay this additional amount.
If the policyholder’s death results from a natural cause, such as a heart attack, cancer, or age-related illness, the insurer will only pay the base cover amount. However, If the policyholder dies due to an accident — such as a car crash or other unforeseen mishaps — the insurer will pay both the base cover amount and the additional accidental death benefit.
It is important to understand that every insurer has its definition of what qualifies as an accidental death. Generally, an accident is defined as an unforeseen, external, and sudden event that results in the policyholder's demise. This means that deaths due to pre-existing medical conditions, suicide, or natural causes will not qualify for an additional payout under this rider.
Many insurers specify a timeframe within which the death must occur following an accident for the claim to be valid – usually within 180 days. This is something you should be mindful of because some accidental injuries may lead to death after a prolonged hospitalization. If the death occurs outside this timeframe, the insurer may only honor the base policy payout and deny the additional amount from the rider.
Advantages & Disadvantages of an Accidental Death Benefit (ADB) Rider in Term Insurance Policies
- Advantages of Adding an Accidental Death Benefit (ADB) Rider
An Accidental Death Benefit Rider offers multiple advantages that make it an attractive option if you want additional coverage:- Cover Amount Limits: Most insurers have a limit on the maximum term insurance cover you can choose. If this amount seems insufficient, you can increase your coverage with this rider without needing a higher income. However, in these situations, it is generally recommended that you buy the cover amount you can afford right now and purchase another term insurance plan when your income increases.
- Financial Security: An accidental death of a breadwinning family member can create immediate financial distress for surviving family members. A larger payout ensures dependents have enough financial support to manage their lives without immediate disruptions.
- Cost-Effective Coverage: ADB Riders come at a relatively low cost compared to standalone accidental insurance policies. Adding this rider generally increases the premium nominally, based on your cover amount. This makes it an affordable way to increase coverage.
- Flexibility in Usage: The extra payout can be used for multiple purposes, including loan repayments, covering medical emergencies, funding children's education, etc.
While these advantages make the ADB Rider attractive, it also has limitations you must be aware of.
- Drawbacks of an Accidental Death Benefit Rider
- Premium Increase: While the additional cost depends on the amount you choose and is quite nominal, it still increases the total premium you must pay, which might be a slight concern.
- Conditional Payout: The extra payout is applicable only in case of accidental death. The rider does not provide additional benefits if the policyholder passes away due to a non-accidental cause.
Exclusions of the Accidental Death Benefit (ADB) Rider in Term Insurance Policies
Even though this rider ensures you get an additional payout in case of accidental death, insurance companies do not cover all types of accidents under this Rider. Here are some standard exclusions:
- Alcohol or Drug Intoxication: If the policyholder was under the influence of alcohol or drugs at the time of the accident, the claim is likely to be rejected.
- Suicide: Insurers do not cover deaths due to intentional self-harm, suicide, or reckless behavior.
- Adventure Sports: Insurers generally exclude deaths from adventure sports, racing, or extreme activities.
- Criminal Activities: If the policyholder dies while engaging in illegal activities, the insurer will not honor the payout.
It’s important to understand these limitations and exclusions before purchasing any term insurance policy, as it helps set realistic expectations about the claim process.
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Conclusion: Is the Accidental Death Benefit Rider Worth It?
The Accidental Death Benefit Rider can be a valuable addition to a term insurance policy for people who want to secure their family’s future. It is especially useful for primary breadwinners of a family and those seeking additional coverage without a significant cost increase.
While the ADB rider offers excellent benefits, think about this – instead of paying an additional amount for a rider that gets activated only during accidental deaths, why not increase your base cover amount, which will cover all death scenarios?
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