In life insurance, the flexibility of policies is one of the primary reasons people buy them. Out of the many types of policies, two most widely patronized policies include Term Insurance plan and Money Back Policies, with different approaches to providing financial security. While these policies, in their base form, offer core benefits like life cover and protection, the inclusion of policy riders can add substantial value, tuning them up according to specific requirements and needs.
What are Policy Riders?
A rider is an additional or ancillary provision added to an insurance policy to modify or complement its coverage. Riders are usually not mandatory and are charged separately. Riders provide solutions based on the needs of the policy owner and may enhance the protection offered by the base policy.
Examples of riders include:
- Pays an additional sum assured in case of death due to an accident.
- Pays a lump sum on diagnosis of critical illness.
- Waives future premiums in case of disability or critical illness of the policyholder.
- Pays a regular income to the family of the policyholder in case of death.
- Pays during permanent disability due to an accident.
Riders can accompany both Term Insurance and Money Back Policies. Let us now discuss how these add-ons affect each of the policy categories.
Term Insurance: A Crisp Overview
It offers financial protection over a particular period or term. If the policyholder dies during the term, the nominee is entitled to the sum assured. However, if the policyholder survives the term, no benefit is payable, making it a “pure risk” cover. Term insurance is relatively less expensive compared to other life insurance products since it does not acquire any cash value, and it only serves the purpose of giving protection to dependents in case the policyholder dies. Impact of Policy Riders on Term Insurance
While the basic benefit of term insurance is easy to understand, policy riders can provide significant value when it comes to offering additional protection or dealing with specific risks.
Let’s consider some of the most common riders attached to term insurance:
- Accidental Death Benefit Rider: This rider increases the sum assured if the policyholder dies because of an accident. With life being unpredictable, this rider can be a very good add-on to term insurance. This would provide additional financial security to the family of the policyholder in case of accidental death.
- Critical Illness Rider: Life is unpredictable, and illnesses like cancer, heart attack, stroke, or kidney failure can have important financial consequences. The rider provides a lump sum payment in the event of any listed critical illness. The rider allows the policyholder to focus on recovery without worrying about the financial burden of medical bills and treatment costs.
- Waiver of Premium Rider: This rider guarantees the waiver of future premiums in case of critical illness or permanent disability of the policyholder. This means that, even if the policyholder is unable to work or earn due to health reasons, his or her insurance policy remains active.
- Premium Return Rider: Many insurance companies offer a premium return rider wherein all the premiums paid during the term are refunded if the policyholder survives the policy term. This increases the cost of the premium but gives a refund of all premiums paid thus reducing the overall risk of term insurance.
Money Back Policy: A Basic Overview
Money Back Policy is a type of life insurance plan that provides regular pay-outs during the policy term along with a sum amount at the end of the policy term.
The policies are more “investment-oriented,” because money back policies are associated with a sum assured and, along with providing life cover, have regular payout benefits. At intervals, the policyholder gets a certain percentage of the sum assured and if they survive the term of the policy, then a balance sum assured is given back in one go along with the add-on of any bonuses accrued in the policy.
Policy Riders Impact on Money Back Policies
Money back policies already provide financial flexibility and support through regular payouts and lump sum benefits. But with the addition of policy riders, this coverage can be further enhanced and can meet the changing needs of policyholders.
Here is how some of the riders affect money back policies:
- Critical Illness Rider: Just like in the term insurance, this rider in a money back policy provides a lump sum amount on the diagnosis of any covered critical illness. It is useful for those looking to secure themselves against high medical expenses while also enjoying the benefits of a money back plan.
- Accidental Death and Disability Rider: This rider provides additional benefits in case the death is due to an accident or permanent disability due to an accident. Since money back policies already provide survival benefits, adding this rider can provide additional financial security for families if the policyholder suffers from an unfortunate event.
- Income Benefit Rider: Added to this rider is added financial security for policy holders who would want their loved ones to receive a regular income from the said policy in case such an event of untimely death were to occur. Beyond the lump sum amount, it supplies a monthly income to the nominee, keeping the family’s way of living after the unfortunate death of the policy holder.
- Hospital Cash Rider: This rider provides daily hospital cash benefits while in the hospital. It helps pay for the expenses, and since money back policies are generally built to provide financial flexibility by periodic payouts, the hospital cash rider further alleviates financial stress during medical emergencies.
- Waiver of Premium Rider: If a critical illness or disability strikes, the waiver of premium rider allows the policyholder not to pay premiums for the remaining term of the policy, and the policy will continue to provide its regular benefits.
Conclusion
Term insurance and money back policies are used for different purposes, but adding policy riders can make them much more valuable in terms of protection and benefits. Term insurance policies, though cheap and simple, can be made more comprehensive by adding riders such as accidental death, critical illness, or waiver of premium. On the other hand, money back policies, which provide a combination of life coverage and periodic payouts, can benefit from riders that add protection against health-related risks, accidents, or the need for regular income.
