Does adding riders to your term plan make sense?

Here are the four benefits of including add-ons with your term life insurance policy

1. Add-ons can be useful when needed: As we all know, a term plan is purely for life insurance. A basic insurance meets the financial needs of a policyholder’s family if he or she dies during the policy’s term. In case, a policyholder is involved in an accident and becomes permanently disabled, having riders such as accidental disability and disability premium waiver can be a blessing in disguise. In this case, the policyholder will get the sum assured under the accidental disability rider. S/he might use the money for treatment or anything else. Meanwhile, having the waiver of premium on disability riders implies they no longer have to pay the policy premiums. However, the insurance would stay active until the end of the term, and the sum assured would remain unchanged. 
2. Some add-ons cost less than stand-alone plans: Insurance for accidental death and critical illness is available as both stand-alone policies and riders, however, riders are less expensive. To further grasp this, let’s use the example of a critical sickness rider. 

If you purchase a critical illness cover for Rs 5 lakh as a standalone plan at the age of 30, you will pay approximately Rs 8,400 per year for the policy. Meanwhile, if you add a Rs 5 lakh cover to your term life insurance policy, you will just need to pay Rs 4,200 a year. 

1. No separate document or medical checkup is required for an add-on: When you purchase a rider with a term insurance policy, you are not required to sign any additional documentation for the rider. All you have to do is indicate the riders you wish to include with your term life insurance plan, and your premium amount will be determined. If you purchase riders such as critical sickness or waiver of premium for a critical illness, you are not required to undergo a separate medical examination. 
2. Some riders aren’t offered as standalone policies: Accidental disability riders are not offered as a standalone policy. As a result, in order to benefit from them, you must purchase them as an add-on to your term insurance policy. Meanwhile, the waiver of premium riders applies only to your term life insurance policy. If you don’t have a term plan, you don’t require this type of plan.

Here are the four downsides of having add-ons to your term life insurance coverage

1. Riders complicate the buying process: A term plan is a straightforward product that is easy to understand. It’s a pure life cover. That is, if you die during the policy’s term, the insurance company will pay your family the amount assured. Compared to other life insurance plans, it offers more coverage for a lesser price. It does not provide any maturity benefits. However, if you start adding riders, the purchasing process becomes more cumbersome. When you look at the list of riders given by various insurers, you’ll notice that there are too many to pick from. Having too many options now puts you in a bind, complicating the purchasing process. 
2. You must pay an extra charge for the riders: One of the most significant advantages of term insurance is its cost-effectiveness. However, once you start adding riders to your term life insurance policy, the premium amount you have to pay increases. For example, suppose you are 30 years old and want to purchase a Rs 1 crore term life insurance policy that will cover you till the age of 70. The premium for the plan (without any riders) is approximately Rs 10,200 per year. Now you may start adding riders to it. First, you select a critical illness rider, which costs Rs 4,200 per year. The premiums for accidental death and disability will now be Rs 1,400 and Rs 1,600 per year, respectively. As a result, the total annual premium for term insurance with riders would be Rs 17,400.
3. Premium amounts for riders may be altered later: The premium amount for term life insurance remains constant during the policy’s duration. For example, if you purchase a Rs 1 crore term plan and agree with your insurer that the premium amount will be Rs 12,052 per year when you sign the contract, you will be required to pay Rs 12,052 for the remainder of the term. However, it is not the same for riders. Some insurers may change the rate for riders later on. For example, suppose at the time of purchasing, the critical illness rider costs Rs 4,200 per year, however, the insurer may raise the rate after five years. 
4. The coverage amount from the term insurance rider may be smaller than you seek: A term insurance add-on can only provide so much coverage, and it may not be what you are looking for. For example, for a term insurance policy of Rs 1 crore, the critical sickness cover typically runs between Rs 10 and Rs 30 lakh. Alternatively, the amount for accidental death ranges from Rs 5 to Rs 10 lakh. However, if you want to increase the amount, you cannot exceed that restriction.

Looking at both the benefits and downsides, it is clear that adding riders to your term life insurance can only be advantageous if the riders are carefully chosen. The premium for riders is based on the basic sum assured. Of course, some riders are inexpensive, while others are more expensive. However, while purchasing term life insurance, look for riders that will make your coverage more comprehensive while not increasing the cost.

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