Term life insurance is a necessity for every earning individual as it would cover the financial needs of his/her family in case of his/her untimely demise. But, whether to add riders to your term plan is a different question.
There are two different perspectives regarding whether one should add riders to his/her term plan. First is, riders make term plans complex and hence, disadvantageous. The second is, they make term insurance more comprehensive. And therefore, adding them to your term life insurance policy is beneficial.
In this blog, we will look at the advantages and disadvantages of having add ons for term life insurance. This will help you assess whether it is necessary to have riders with your term life insurance policy.
Here are the 4 advantages of having add-ons with your term life insurance policy.
#Number 1: In the time of need, add-ons can be beneficial
A term plan is a pure life cover. A basic one takes care of the financial needs of a policyholder’s family if he or she dies during the policy tenure.
Now in case, a policyholder meets with an accident and becomes permanently disabled then having riders like accidental disability and waiver of premium on disability can be a blessing in disguise. In such a scenario, the policyholder will receive the sum assured for the accidental disability rider. He could use this money for treatment or any other purpose.
Meanwhile, having the waiver of premium on disability rider means he wouldn’t have to pay the policy premium anymore. But the policy would remain active till the end of the term and the sum assured would remain the same.
At times, having the right riders with a term plan can turn out to be more beneficial than a pure vanilla term life insurance.
To know about the different riders that come with term life insurance policies available in the market, click here.
#Number 2: Some add ons are cheaper than stand-alone policies
Insurance for accidental death and critical illness are available as stand-alone policies as well as riders, but the riders come cheaper.
Let’s take the example of a critical illness rider to understand this one better.
If you take a critical illness cover for Rs 5 lakh as a standalone plan at 30 years of age, you will have to pay about Rs 8,400 per year for the policy. Meanwhile, if you take a Rs 5 lakh cover as an add on with term life insurance, you will have to pay only Rs 4,200 per year for the add on cover.
#Number 3: No separate document/ medical checkup is needed for an add-on
When you buy a rider with a term insurance policy, you do not have to sign extra documents for the rider. All you have to do is, declare what riders you want to add with your term life insurance plan, and accordingly, your premium amount will be decided.
If you are buying riders like critical illness or waiver of premium for a critical illness, you do not have to go through separate medical check-up.
#Number 4: Some riders are not available as stand-alone policies
Accidental disability rider is not available as stand-alone policies. Hence, if you want to avail them you have to buy them as an add on with the term insurance policy.
Meanwhile, the waiver of premium riders comes exclusively to your term life insurance policy. There is no need for a plan like this if you do not have a term plan.
Now since we looked at the advantages, it is equally important to know about the disadvantages of adding riders with your term plan.
Here are the 4 disadvantages of having add-ons with your term life insurance plan
#Number 1: Riders makes the buying process complicated
A term plan is a simple product and very easy to understand. It is a pure life cover. That’s if you die during the policy tenure, the insurance company will pay your family the sum assured. As compared to other life insurance products, it provides higher coverage for a lower premium. It does not offer any maturity benefit.
But once you start adding the riders to it, you make the buying process complicated. Now, if you look at the list of riders offered by different insurers, you will find that there are too many riders to choose from. We have mentioned a few riders earlier, but there are more like accidental death rider, accelerated death benefit rider, and income benefit rider. Now having too many choices puts you in a fix, making the buying process complicated.
#Number 2: You have to pay extra premium for the riders
One of the biggest benefits of term insurance is its cost-effectiveness. But once you start adding riders to your term life insurance policy, the premium amount that you have to pay goes up.
For example, let’s assume you are 30 years old and want to buy a Rs 1 crore term life insurance policy that provides you cover till the age of 70. The premium amount you would have to pay for the plan (without any rider) be around Rs 10,200 per year. Now, you start adding riders to it. First, you take a critical illness rider, the premium amount for this is Rs 4,200 per year. Now, for accidental death and accidental disability, the premium amount would be Rs 1,400 and Rs 1,600 per year respectively.
Accordingly, the total premium amount that you would be required to pay for the term insurance with the riders is Rs 17,400 per year.
| The total premium amount for a Rs 1 crore term plan with three different riders | |
| The total coverage amount for the term life insurance | ₹1 crore |
| Tenure for coverage | 40 years |
| Premium amount for the basic plan (per year) | ₹10,200 |
| Premium amount for critical illness rider (per year) | ₹4,200 |
| Premium amount for accidental death rider (per year) | ₹1,400 |
| Premium amount for accidental disability rider (per year) | ₹1,600 |
| The total premium amount for the term plan with three riders (per year) | ₹17,400 |
#Number 3: Premium amounts for the riders might be revised later
The premium amount for a term life insurance remains the same throughout the policy tenure. For example, if you buy a Rs 1 crore term plan and you and your insurer decide that the premium amount for it would be Rs 12,052 per year while signing the contract, that means you will have to pay Rs 12,052 for the rest of the tenure. But it is not the same for riders.
Some insurers might revise the rate for riders later on. For example, say at the time of the purchase of the policy, the critical illness rider came for a premium of Rs 4,200 per year, but the insurer might increase its rate after five years.
Now it is compulsory for the insurer to mention that that rate vision will happen in the policy paper. So read the fine print of the policy before buying it. However, the amount of premium hike is decided when the time comes.
#Number 4: Coverage amount from term insurance rider can be lower than you seek
There is a limit to how much coverage you can have from a term insurance add-on and it might not be the same as you seek. For example, for a term insurance coverage of Rs 1 crore, the critical illness cover that you get usually ranges between Rs 10 and 30 lakh. Or for accidental death, it is Rs 5 to Rs 10 lakh.
However, if you want to increase the amount, you can’t increase it beyond that limit.
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