What are Riders or Add ons in Term Insurance?

One of the common myths associated with term insurance plans is that “term insurance policies are not flexible/customisable.” Well, as all myths go, this, too, isn’t true.

Depending on the term insurance plan you choose and the term insurance provider you approach, each policy comes with a host of term insurance riders or add-ons. These riders are primarily responsible for tweaking plans to customisable financial products.

Now, thanks to the evolving lifestyle, health complications, and intent of financial awareness, new term insurance riders have surfaced over the years. While the purpose is to ensure that policyholders (existing and potential) from all generations can tailor the plans to their future financial goals and current financial bandwidth, not all riders are worth the purchase. On the other hand, some riders have become synonymous with purchasing term insurance policies. Such riders help you tap into the complete potential of a policy.

So, if you plan to buy a term insurance policy - GREAT, but pair that up with the list of the best possible riders. To ensure that you opt for value-worthy riders and not the ones that fetch redundant additions to your premium, let’s start evaluating term insurance riders - what are they, the different types of riders in term insurance, and the best term insurance plans that comprise them.

Best Riders or Add-ons in Term Insurance Policies in India

1. Critical Illness Rider
2. Waiver of Premium
3. Accidental Total and Permanent Disability Rider
4. Life Stage Benefit
5. Accidental Death Benefit
6. Increasing Cover Option
7. Decreasing Cover Option
8. Return of Premiums

What are Term Insurance Riders?

Term insurance riders are add-on features to the base term plan that allow you to customise the policy according to your tailored financial requirements, goals, and bandwidth. The riders offer enhanced financial protection that safeguards policyholders' niche requirements.

Suppose you manage to choose the best possible riders. In that case, you can enjoy access to higher coverage/immediate funds during times of dire requirement (including but not limited to the policyholder's death) against a meagre rise in annual premiums.

Heads Up: It takes an average person up to 5 hours to read & analyze a term life policy, and 10 hours or more to compare different plans and make a decision.

This is why we propose a better alternative - taking a 30-minute FREE consultation with Ditto’s certified advisors. We have a spam-free guarantee, and we’ll never push you to buy a plan. Don’t delay this - we have limited slots every day, so book a quick call here before they run out.

What are the Best Term Insurance Riders?

As mentioned before, multiple term insurance riders have emerged over the years. However, not all of them are worth the purchase. Here, we are listing the most common term insurance add-ons offered by the best term insurance providers -

1. Critical Illness Rider: Almost all the best-term insurance policies offer Critical Illness Riders. This is also one of the highly recommended add-ons by term insurance experts.

Say, a term insurance plan offers Critical Illness Rider. This means the insurer will provide you with a list of critical illnesses. The insurer will offer you a lump sum if you are diagnosed with any of these ailments. This amount can be used at your discretion, that is, to fund any expenses, including the treatment of the disease, savings, etc.

The number of critical ailments covered by a term insurance policy varies from one plan to the other. Considering the importance of this term insurance rider, some policies have 2-3 variants based on the number of ailments this rider covers.

Now, critical illness riders are of 2 types -

 a. Standard critical illness riders - Under this variant of critical illness riders, the disbursed lump sum exceeds the base cover amount. So, in case of the diagnosis of a critical ailment, you get an additional amount that leaves the sum assured undisturbed and to be disbursed in full in the case of the policyholder's death later during the policy tenure.

 b. Accelerated critical illness riders - The disbursed sum is deducted from the base sum assured. Since the amount is a part of the base sum assured, the disbursal time is quicker than the standard variant. However, this also means you should expect a lower death benefit than the total corpus.

The best-term insurance policies cover 20 to 64 critical ailments.

 2. Waiver of Premium: Say you are diagnosed with a critical ailment or are left permanently incapacitated following an accident. Under such circumstances, your source of income is severely compromised, leaving you to compromise between arranging for funds to manage household expenses and continuing your term insurance coverage.

To avoid such situations, the Waiver of Premium Rider offers you the lucrative perk to waive off any future premiums to be paid towards your term insurance plan. Thus, you can continue enjoying insurance protection without spending a penny. This is a crucial and recommended rider to opt for in your term insurance policy.

 3. Accidental Total and Permanent Disability Rider: This is an add-on financial offered with your term insurance plan that kicks in if you have lost both legs and/or both arms, both eyes or one leg and one arm.

Based on the insurer and the plan you have availed, the perk can be offered as a waiver of premium or as the disbursal of a lump sum. In both cases, however, the goal is to financially aid you when your source of income is severely compromised.

Additionally, this rider might be an independent add-on to your plan. Depending on the term insurance provider, it may be offered as a standalone option or combined with income or Critical Illness Riders.

 4. Life Stage Benefit: Now, you are usually recommended to compute the ideal term insurance coverage using a free calculator and cross-check the same with an expert insurance advisor. However, what happens if there are some unforeseen expenses involved over major life stage events like weddings, childbirth/adoption, home loans, etc.? This is where a Life Stage Benefit Rider can come into use. The rider offers a significant bump in your cover amount up to a capped limit during such major life-stage events.

 5. Accidental Death Benefit: This rider is valuable for entrepreneurs who travel frequently. If the policyholder dies in an accident, his/her beneficiary receives an additional payout on top of the base sum assured. The unexpected nature of such events provides little time for financial preparation, making this extra amount particularly beneficial.

 6. Increasing/Decreasing Cover Option: A standard term insurance policy does not allow adjustments to the coverage amount. However, life changes such as varying number of dependents, taking out or repaying loans, or inflation can affect your family's financial needs. Riders like the Increasing Cover Option or Decreasing Cover Option can help.

The Increasing Cover Rider annually boosts the cover amount by a fixed percentage. While opting for the Increasing Cover Rider is wise, avoiding the Decreasing Smart Cover is best. Even when dependents are financially independent, inflation continues, making the cover amount valuable for your spouse in your absence. Therefore, it is advisable to increase or maintain the cover amount.

However, we recommend that you compute the ideal term insurance coverage using a free tool instead of opting for this term insurance rider. That would factor in -

• Your age
• Years till your retirement
• Number and age of dependents
• Inflation rate
• Existing financial liabilities

-leaving very little to chance.

 7. Return of Premiums: Potential policyholders often face an issue with term insurance policies that raise doubt about whether they should purchase this type of life insurance plan. This issue is based on the fact that term insurance policies only kick in in the event of the policyholder's death during the plan's tenure. However, if the policyholder survives the tenure, then all the premiums and the cover amount are lost.

Now, suppose you have opted for a Return of Premium Rider and survived the policy tenure. In that case, the insurer reimburses your accrued premiums (not including the premium for riders and the GST).

While this rider seems like a great choice, we usually advise against it, considering that the premium will be steeper if you opt for this premium. If you look at the numbers, that bump in the premium is not worth the rider perks.

So, if you are looking for the best term insurance policy, you would want to choose a plan with the most crucial riders: Critical Illness Rider, Waiver of Premium, Total and Permanent Disability Rider, Life Stage Benefit, and Accidental Death Benefit.

Considering this factor, here’s a quick look at the best-term insurance plans based on the riders they offer.

What are the Best Term Insurance Plans?

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Conclusion

Opting for a term insurance plan is a significant financial move for you and your family. It keeps them financially prepared and safeguarded in the unfortunate event of your absence. However, if you want to gain the complete potential of your plan, you must opt for a few value-worthy term insurance riders. This is crucial, considering that term insurance plans are not an umbrella product like most life insurance products. You need to customise the policy to get your penny’s worth, ensuring that the plan caters to your tailored financial requirements and goals.