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Tuesday, May 16, 2017

How additional riders work in an insurance policy

[Source : The Economic Times]

Riders in insurance policies offer additional benefits with an insurance product. These are benefits that are not covered under standard insurance products.

There are various kinds of riders sold with life, health and motor insurance policies which offer customised features to the customer.

1. What are term life insurance riders?

Insurance companies started focusing on pro tection or term plan in the last 7-8 years. Riders became popular as additional benefit with term plans. There are sev eral riders sold with term plans such as critical illness, waiver of premium, accidental death, permanent or partial disability and income benefit rider.Income benefit is the latest rider sold with a term plan. In case of death of the insured, this rider pays monthly income for a period of 10-15 years. It will offer rider as monthly income. Child plans generally comes with a waiver of premium rider. It is purchased with parent's term life cover and waives premium for the child up to the age of 25 years, in case of a mishap.

2. Can one buy standalone rider?

One cannot buy a rider standalone. The reason that it is not a product, but a rider is to make sure it is sold along with an insurance product.

3. How popular are riders?

Riders are sold with almost 70-80 per cent of own damage motor insurance pol icies. Companies started selling riders post freeing up of pricing in 2007 though they have started gaining popularity only in the past 7-8 years. Riders help consumers customise a product to suit their needs. The most popular motor insurance rider is zero depreciation. Zero depreciation rider does not factor in the depreciating cost of parts of vehicles in case of repair.

Other popular motor insurance riders are return to invoice, key protect, tyre protect and engine protect. Return to invoice rider pays total invoice value of the vehicle in case of a total loss. Claims come under the engine protect rider during rains or adverse weather conditions when engine of the vehicles stops working.Around 70 per cent of term life policies sold are with riders. It started gaining popularity with term plans in the last four years.

People buy health insurance riders to get coverage, which are not included in a basic health insurance policy such as critical illness cover, personal accident rider and room rent waiver.

4. What is the cost of buying a rider?

In motor insurance own damage policy , premium can go up by up to 10 per cent for al most all riders. A motor insurance policy has two parts -own damage and third party.

Third party pays for the liabilities arising to the third person in case of an accident, and is man datory by law. Own damage pays for the damages to the vehicle.

Cost of buying riders with life insurance policies varies from type-to-type. Critical illness is the most expensive life insurance rider and pre mium can go jump up to 15 per cent. There is a cap on premium charged on riders. It cannot exceed 30 per cent of the basic insurance plan.

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