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Choose your toppings

Adding riders to an insurance plan not only increases the life cover but also enhances the scope of the policy.

By Narayan Krishnamurthy | Print Edition: November 30, 2006

There was a time when you walked into a pizza shop, ordered a pizza, ate it, paid the bill and walked out. You didn’t spend too much time thinking which pizza to order because there were only three to choose from — cheese, mixed vegetable and non-vegetarian. If you were lucky there was also a mushroom variant. Not any more though. The entry of foreign chains has heightened the competition in the fast-food market. To keep cash registers ringing, pizza makers are offering varied choices and customising their products to suit the taste of the clientele.

Something similar is happening in life insurance. New players have not only increased competition but also spread awareness about the need for insurance. Instead of the one-size-fits-all approach of the yesteryears, insurers now try to understand the customer’s needs and offer him solutions to cover those needs.

Insurance riders represent a major milestone in this customisation. These are the add-ons that one can take along with his life insurance policy to either enlarge his cover or enhance the scope of the cover. These riders can be broadly slotted into five heads — accident, health, insurability, waiver of premium and term plans. Says Binay Agarwala, vice-president, ICICI Prudential Life Insurance: “Riders allow you to customise your policy to match your needs.” Just as extra toppings enhance the taste and value of the pizza, a rider enhances an insurance policy.

Small rise in premium, giant leap in cover

Policy and riders

Sum Assured (Rs)

Premium (Rs)

Kotak Moneyback Plan5 lakh34,125
Term benefit5 lakh2,020
Accident death benefit1 lakh90
Permanent disability1 lakh45
Critical illness1 lakh380

All figures in Rs. Premium for a 30-year-old male. By paying 7.5% more premium on riders, he can raise the cover from Rs 5 lakh to Rs 13 lakh.

For instance, by paying a little extra premium, one can add an accidental death benefit rider. A little more premium gives him cover for medical expenses in case of a surgery or critical disease.

There’s even a rider that allows him to enlarge his insurance cover at a later date without having to go through medical tests. Says Gaurang Shah, managing director, Kotak Life Insurance: “It makes sense to cover risk based on factors that are unique to you.”

But you wouldn’t want too many toppings on your pizza, would you? After all, you are looking for a fast meal, not a lengthy and expensive dinner. Similarly, one must be selective when it comes to riders. Assess your insurance needs properly before taking a rider. Most riders cannot be discontinued without terminating the policy.

Fabien Jeudy, vice president-Actuarial, Birla Sun Life Insurance, strongly recommends the critical illness and term riders. A critical illness rider is truly beneficial because it provides the insured person with money immediately after the diagnosis. That way, the person has a chance to use the money for the treatment. A plain medical insurance cover may not suffice if the treatment is lengthy and costly.

The surgical benefit cover is also helpful, though one must study the fine print carefully. There may be too many exclusions. Do not take the hospital cash benefit rider which offers only a daily cash allowance in case of hospitalisation. It does not cover the treatment. Accident benefit again is good, but make sure it comes with a disability cover.

When it comes to a term cover, a separate term policy is cheaper than a rider. Also, the tenure of the stand-alone term policy need not be linked to that of another insurance policy. If someone wants to end the term plan, he can do so easily.

An insurability rider is best avoided. Go for a policy that hikes the sum assured every year. The waiver of premium rider too isn't of much use.

The high premium costs negate the benefits of waiver.

The biggest advantage of riders is that the premium remains fixed for the entire tenure of the policy. So, choose the right rider to enhance your life insurance cover—qualitatively as well as quantitatively.

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