What does a rider mean in a life insurance policy?

How do you increase the life insurance element in a bundled plan? You can do that by buying a term life rider. A rider is an add-on cover to the base policy that provides additional benefits. Life insurance companies offer a range of optional riders that you can buy at an additional premium to suit your needs. Read for more details on riders.

A rider is an optional add-on to a policy, which is explained in the product brochure. So you can buy a rider as long as the product offers you that option. Typically, you need to choose the rider at the time of buying the policy. There are a host of riders that life insurance companies offer. The most popular ones are accidental death and permanent disability riders. Under this, if death of the policyholder occurs due to an accident then, apart from paying the life insurance benefit promised under the base policy, the policy will also pay an additional sum insured as specified in the rider. In case an accident leaves the policyholder permanently disabled, the rider will pay the specified sum insured.

Critical illness is also a common rider that pays a lump sum if the policyholder contracts any of the specified critical illnesses. Other than this, a waiver of premium rider is very popular with bundled policies. Under this rider, if an insured person dies during the policy term, the rider funds the future premiums due. Thus, on maturity, the beneficiary is able to receive the maturity benefits as planned. Bundled plans also offer a term insurance rider in order to enhance the insurance cover. A term rider is a term insurance policy that pays the sum assured on death of the policyholder. Keep in mind that since most of these riders are defined-benefit plans, the benefits are fixed against an insured event. Once the rider policy is claimed, the rider terminates; and the base plan continues as per its terms.

Advantages of a rider policy

Since a rider is attached to a base policy, the insurer gets to save on costs. The benefits of this get passed on to you and you may end up buying a rider a tad cheaper than a standalone policy. A quick check shows that a critical illness rider for a 30-year-old and for a sum assured of Rs10 lakh would cost around Rs3,741. Whereas, a similar stand-alone policy would cost about Rs4,425. The other advantage of a rider is that the premiums remain the same and of course there is convenience of managing just one policy.

Some of the things to keep in mind

Beware of the caveats. Do go through the rider benefits in detail and compare them with a stand-alone policy to understand the coverage, a lower premium in a rider could also be due to a less comprehensive coverage. Also, keep in mind that since it’s a rider policy, it will only continue till such time that the base policy is in force. So, if you choose to surrender the base policy, you will have to forgo your rider benefits too. Also, the coverage of the rider is limited as per regulations. As per the rules, the premium of health related riders can’t be more than 100% of the premium under the basic product and premiums of all other riders put together can’t be more than 30% of the premium under the base policy. Also, any benefit from the rider cannot exceed the sum assured under the base policy.