A few days ago, a client approached an advisor at Ditto. He wanted to purchase a term insurance policy. While our advisor had a list of the top term insurance plans, she wanted to hear what the client had in mind regarding the coverage perimeter.
The client said, “I do want a term insurance plan. I understand this is one of the most affordable financial protection tools. However, I am a bit concerned. One of my friends recently went through something horrible—he had an accident that left him disabled. Now, he doesn’t have a source of income, has no money to pay his premiums, and hence has lost his term insurance plan. His family is left dealing with extensive bills that are taking chunks out of their savings.
So, the term insurance plan didn’t do him much good, did it? What if the same happens to me?”
Our advisor offered some solid advice - she said, “Sir, there’s an easy solution - add a term insurance rider called the Waiver of Premium. This rider will help if and when you are left with a critical ailment diagnosis, permanently disabled, accidentally disbaled, or even, in some cases, terminally ill.”
So, now the question is, what exactly is a Waiver of Premium in term insurance? How important is this rider when choosing a term insurance policy? Should you opt for a Waiver of Premium rider for your term insurance policy? What are the pros and cons, and what are the best term insurance plans with a Waiver of Premium perk?
Let’s explore and find out!
What is the Waiver of Premium Riders in Term Insurance Plans?
Much like the name suggests, the Waiver of Premium Rider in term insurance plans waives the premiums of a term insurance plan in cases of critical illnesses, total and permanent disability, accidental disability, or terminal illness (subjected to variations based on the term insurance provider you approach).
Here’s an example to help you understand this better -
Ramen is a 35-year-old (non-smoker) who purchased a term insurance policy when he was 25 years old. The term insurance has a cover of ₹2 crores till he turns 65 and a Waiver of Premium rider.
During this time, he is diagnosed with a critical ailment and soon loses the ability to continue with his employment. He approaches his insurer and informs them about the situation. The insurer activates his Waiver of Premium rider, and Ramen now no longer needs to pay the ₹17k - ₹21k premium (although his term insurance policy stays active). This amount can be used to fund his household expenses.
So, suppose you have availed of a Waiver of Premium rider with your term insurance policy in times of dire need (like a critical illness, total and permanent disability, accidental disability, or terminal illness). In that case, the insurer won’t need you to pay any further premiums to keep your policy active.
Should You Opt for a Term Insurance Policy with Waiver of Premium Rider?
Over the last decade, the financial goals and requirements of individuals have undergone some substantial changes. Subsequently, multiple term insurance riders have surfaced to help you tweak the policy as per these evolving financial requirements.
However, only a handful of these term insurance riders are actually worth the purchase. Waiver of Premium is one such rider. On the flip side, much like any financial product, this rider too isn’t without its cons, and while some insurers offer a Waiver of Premium perk as a free add-on to your term insurance plan, you should maybe consider the pros and cons of this rider before giving it the “go-ahead” -
- What are the Pros of Waiver of Premium Riders in Term Insurance Plans?
- Offered as a free add-on at times: While Waiver of Premium is a term insurance rider, some term insurance providers offer this perk as a free add-on that is added to your plan by default.
Even if your term insurer doesn’t offer a Waiver of Premium as a free add-on, the addition to your premium will be minimal.
- Act as the perfect financial “God-sent” during dire times: When you are tied to your bed with a permanent and total disability situation, a critical ailment, or a terminal illness, you can’t be working full time. So, you are looking at a diminished monthly earning, which will be tied up in funding your household expenses. Hence, you don’t have the surplus amount to pay your term insurance premiums.
Now, if you have a Waiver of Premium rider in your term insurance policy and are going through such dire situations, you wouldn’t need to pay any future premiums (after the incident) to keep your cover intact and active. The amount set aside to be used for your premiums can fund your daily expenditures, treatment requirements, pharmacy bills, and more.
- Maintain long-time coverage: Waiver of Premium perk offers you the unique benefit of continuing your term insurance policy till the policy tenure is up.
So, let’s say you purchased a term insurance plan when you were 20 years old for coverage of ₹2 crores until you turn 65. Unfortunately, you are left incapacitated following an accident at the age of 30 years. Although you have paid premiums only for 10 years in your term insurance policy, the insurer will have you covered until you turn 65.
2. What are the Cons of Waiver of Premium Riders in Term Insurance Plans?
- Expect additional medical underwriting: Under Waiver of Premium, the term insurance provider in question willingly offers to pay off your premiums until the policy tenure expires. Needless to say, since the insurer is taking on such a great financial risk, you must expect additional medical underwriting that will cross-verify the diagnosis (of terminal ailment, critical illness, total and permanent disability, or accidental disability, as required by the insurer) leading to the activation of the Waiver of Premium perk.
However, this is a very trivial hurdle to overcome and a necessary one, lest policyholders start taking undue advantage of the perk.
- Varying restrictions: Each term insurance provider has different criteria for activating the Waiver of Premium perk.
Depending on the term insurance provider you approach, these conditions will vary. So, when choosing a term insurance policy and provider, make sure to read into the finer points of the term insurance policy document regarding this perk. This will ensure that you can apply for the Waiver of Premium perk at a suitable time.
Now, term insurance plans are a financial necessity. Take a look at our videos, and you will learn about the advantages of this financial product. However, despite the affordability of these policies, during times of health scares that tie down your savings while compromising your source of income, a rider that lets you keep your term insurance policy active without spending a penny towards the plan in the future - is a perk that you don’t want to pass on.
Hence, along with riders like Critical Illness, Increasing Cover Option, Accidental Death Benefit, and Life Stage Benefits, the Waiver of Premium perk is also a deciding factor when choosing a term insurance policy.
What are the best term insurance plans with a waiver for premium riders?
- Max Life Smart Secure Plus - Max Life, one of the largest private insurers in the country, offers this excellent term insurance plan. It is comprehensive and affordable, with numerous perks, including:
- Zero Cost Term Plan Options
- Option to boost coverage to match inflation
- Accidental Death Benefits
- Waiver of Premiums in case of accidental total and permanent disability or diagnosis of a critical illness
- Critical Illness Rider
- Top-up option to increase coverage after policy purchase
- Total Permanent Disability Rider
- In-built terminal illness rider
- Maturity benefits through premium returns
This plan also stands out as an exceptional option for smokers, providing lower premiums for smoker profiles than others in its category.
Drawbacks: Although the terminal illness benefit is included in the policy, insurers do not disburse the full sum assured upon diagnosis of a terminal ailment with a poor prognosis and a few months to live, as declared by a doctor in writing. Instead, they only pay out a portion of the sum assured.
2. Bajaj Life eTouch: The e-Touch plan from Bajaj Allianz Life Insurance is one of their most popular term plans. While it lacks a few crucial features, it offers several benefits:
- Extremely affordable premiums (among the lowest in the industry).
- Extensive coverage, with a maximum of ₹50 lakhs or ₹10 crores, depending on your income slab.
- Three variants: Life Shield, Life Shield Plus, and Life Shield Return of Premium.
- Various combinations of features and riders, including death benefits, terminal illness, waiver of premium, accidental death benefit rider, and return of premiums, based on your chosen variant.
Drawbacks: However, a significant drawback is that the plan does not offer any Critical Illness (CI) cover, either as a built-in feature or as a rider. Considering the importance of CI coverage, this is a notable limitation.
3. ICICI Prudential iProtect Smart: This term insurance plan with a critical illness rider stands out as an excellent choice. It is affordable, comprehensive, and feature-rich.
Key features include:
- Accidental Death Benefit Rider
- In-Built Zero Cost Term Plan Option
- In-Built Terminal Illness Benefit
- In-Built Life Stage Benefit Option
- In-Built Waiver of Premium in case of total permanent disability
- Maturity benefits in the form of premium returns (rider)
Notably, the policy offers lower premiums for smokers, a significant advantage since smokers often face premiums double those of non-smokers.
Drawbacks: The plan does not permit increasing the base cover amount based on inflation and excludes riders for total and permanent disability. Additionally, it lacks Accelerated options for its Critical Illness Rider, offering only the standard option where the payout is over and above the base sum assured.
4. HDFC LIFE Click 2 Protect Life: HDFC Life stands out as one of the top life insurance providers in the industry, with impressive credibility metrics over the past three years. It offers several appealing features, including:
- Accidental death benefit rider
- Waiver of premium for critical illness and total and permanent disability
- Total and permanent disability rider
- Critical illness rider
- Maturity benefits through premium returns
The Click 2 Protect Life policy from HDFC Life is an excellent choice for those seeking a term insurance policy with a critical illness rider.
Drawbacks: Unfortunately, the Click 2 Protect Life plan from HDFC Life has fewer features than other policies in its category. It lacks a zero-cost option, terminal illness benefits, a top-up option, and an inflation-based boost in cover amount. Additionally, like most plans from HDFC Life, this policy is comparatively expensive.
5. TATA AIA Maha Raksha Supreme: This term insurance plan ranks among the most affordable in the industry and has become quite popular among policyholders. TATA AIA excels in credibility metrics such as Claim Settlement Ratio, Amount Settlement Ratio, and complaint volume. Combined with its robust features, this gives it a competitive edge over other plans in its category. The TATA AIA Maha Raksha Supreme policy provides additional benefits, including:
- Accidental Death Benefit
- Waiver of Premiums in case of accidental total and permanent disability or diagnosis of a critical illness
- Critical Illness Rider
- Total Permanent Disability Rider
Drawbacks: The insurer may present a minor challenge due to TATA AIA’s recent operational efficiency issues. Additionally, the plan is available only to individuals with an annual income of over ₹15 lakhs and who opt for a cover exceeding ₹2 crores.
Conclusion
Term insurance plans have steadily gained popularity as people seek affordable financial products with 0 risks and maximum customisation flexibility. Subsequently, most vanilla term insurance policies are a good option. However, suppose you want your penny’s worth with your policy. In that case, you need features like Waiver of Premium that will have your back (financially) during times of health crisis, which consumes your savings and diminishes your source of income, making it financially impossible to continue your plan. A Waiver of Premium during such times is a welcome notion, considering it prevents your earlier premiums from going to waste by offering to continue with your plan without requiring any further premiums to be paid towards the policy.
