Endorsements are the add-ons of a life insurance policy that help maximize the benefits and coverage of the policy. They offer powerful additional risk coverage that provides additional financial protection in the event of an event and can be used to tailor your insurance plan to specific needs. Here’s what you need to know about the suitability of endorsements to maximize risk coverage in a life insurance policy.
- Endorsements, as the name suggests, are optional benefits that can be purchased with a basic life insurance plan. Life insurance companies offer a range of such optional endorsements at an additional nominal premium to increase risk coverage under the policy or add new risk coverage.
- Along with additional benefits, a rider improves insurance protection and financial support for the family, especially in the event of accident, disability and serious illness. Many riders provide benefits during the life of the insured, not just additional death benefits.
- As a general rule, the rider premium is significantly cheaper than purchasing a stand-alone insurance product, as riders only provide risk coverage without any savings element.
- The period of coverage and the amount of coverage of the riders cannot exceed the period of coverage or the amount of coverage of the basic life insurance policy.
- Generally, the top-up benefit is payable either as a lump sum or as an income stream in accordance with the policy contract. Several riders can be attached to a policy.
Jumpers to choose from
Let’s take a look at the five main riders and the benefits offered to policyholders and their families.
1. Waiver of Premium Coverage
This rider provides a waiver on all future policy premiums in the event of a contingency such as dismemberment, disability or serious illness due to accident or illness, or any other cause. Apart from this, the policyholder’s family continues to receive the basic policy benefits, which may include premiums, guaranteed income streams, or growth in the value of the fund, depending on the type of policy written.
How does this jumper work:
A 35-year-old man takes out a life savings plan to ensure his family’s financial security and build up a body of work for his child’s higher education. For this, he chooses a basic plan with a policy term of 25 years and a premium payment term of 12 years, with an annual premium of INR 60,000.
However, worried about the child’s future in case of any eventuality, he opts for a waiver of the premium rider, which will ensure that in the event of a diagnosis of serious illness or disability for any reason. Either way, the policy continues without requiring any future premium payment and guarantees that all future benefits remain intact.
In this case, if the insured has an accident and loses both arms after paying six premiums, all future premiums will be forfeited until the end of the premium payment term of the basic plan.
2. Disability cover
A disability rider is an advantageous cover in the event that the insured suffers from a total, partial or permanent disability due to an accident, a stroke or any other cause. Such an incident can have a significant impact on the future income generation capacity of the breadwinner. This rider provides a lump sum or income benefit payable to the insured and his or her family in the event of disability.
3. Accidental death and dismemberment guarantee
Accidents can disrupt future goals and put a strain on family finances. This endorsement protects the financial future of the family in the event of accidental death or accidental dismemberment. Supplementary protection benefits are applicable in the event of an accident of the insured person resulting in death or dismemberment.
How does this jumper work:
A 35-year-old man takes out an insurance plan to secure his financial future. For this, he chooses a variant with a policy term of 17 years and a premium payment period of 12 years, with an annual premium of INR 60,000. In addition, in order to ensure full protection, he purchases an accidental death and dismemberment rider with an insured sum of INR 5,000,000 with a policy term of 17 years and a premium payment term of 12 years.
In this scenario, if the insured dies in a traffic accident after paying six premiums, his family receives the guaranteed death benefit and the bonuses accrued from the basic plan. In addition, the family also receives the insured rider’s sum of 5,000,000 INR.
4. Temporary cover
The term rider, when attached to a life insurance contract, provides additional complementary life coverage, making it an essential element in strengthening the overall risk coverage offered by the contract. In addition to the permanent life insurance policy, the client can choose to improve risk coverage for a specific period according to their needs or for the duration of the basic policy coverage.
5. Critical Illness and Disability Coverage
Under this rider, the policyholder enjoys full financial protection against a range of critical illnesses after a “waiting period”. In case of diagnosis of the covered serious illnesses (such as cancer, heart attack of specific gravity), the insurance company will pay a fixed benefit to the insured and his family. The list of serious illnesses covered and the minimum survival time are mentioned in the general conditions of the rider. Buying this jumper will always be a good financial planning call as it will reduce the financial risk of battling many serious illnesses.
How does this jumper work:
For example, a person purchases a life insurance policy with a premium payment term of five years and a policy term of 10 years. In order to provide additional protection, he also purchases a critical illness and disability rider (a rider sum of 10 lakh INR insured with a rider premium payment period of five years) from a nominal marginal cost. Since all premiums are paid on time, he is entitled to one of the following benefits:
Scenario I – the insured receives a diagnosis of one of the major illnesses listed in the 3rd year of the policy (while still paying the policy premium), then the insured sum of the rider of 10 lakh INR is paid to him upon confirmed diagnosis of the disease (after the 14 day survival period) and the rider ends. In addition, the basic benefit of the policy will remain valid and will not be affected by the payment of the rider.
Scenario II – The insured is diagnosed with one of the minor illnesses listed in 8e year of the policy (while the premium payment term is over but the policy term continues), an insured rider sum of INR 2.5 lakh is paid to the insured upon a confirmed diagnosis of illness (after the 14 day survival period) and the benefits rider continues. In addition, the basic benefit of the policy will remain valid and will not be affected by the payment of the rider.
Scenario III – The insured dies while the base policy and rider are in force, then only the death benefit of the base policy is paid to the beneficiary immediately after approval of the claim, and the policy contract ends . In this case, no rider benefit is paid in the event of death.
Things to keep in mind when selecting runners
With a variety of life insurance plans available, choosing the right one based on a wide range of financial needs is essential. Likewise, a thorough assessment and understanding should be established before choosing the rider coverage. A few things to keep in mind before choosing which rider covers to opt for:
- Evaluate which additional risk coverage is best for you. For example, if your job requires a lot of road travel, it is advisable to opt for accidental death and disability coverage.
- Read the terms and conditions carefully to understand the benefits and exclusions of the riders considered.
- Preferably choose a rider coverage period that matches the basic life insurance plan coverage period.
- Make sure the eligibility criteria are met before opting for an endorsement.
- Speaking with a trusted insurance agent / financial advisor before making the final purchase decision can help allay any doubts one may have about the benefits of the rider.
Added value by bikers
A life insurance plan is not a one size fits all model. Therefore, before comparing different plans, one should consider specific needs such as sum insured, affordability, length of premium payment and period of policy coverage. Once an appropriate base plan is selected, appropriate endorsements to cover specific risks can be added. Here, you have to make sure you understand and assess the emerging needs before making the final purchase.
In addition, the terms and conditions should be read carefully to understand the benefits, exclusions and eligibility criteria of the endorsements considered. Speaking with a trusted insurance agent advisor before making the final purchase decision can help allay any doubts one may have about the benefits of the rider.
Buying a rider should be a good decision. Right now, it makes sense to buy endorsements to improve risk coverage beyond basic insurance coverage at a relatively lower price and secure the financial future of your loved ones.
Do not duplicate coverage between a rider and an existing policy. To do this, read the general conditions carefully, in order to understand all the advantages and eligibility criteria available under the endorsements. Talking to an insurance agent, before making the final purchase, can help allay any doubts you may have about the benefits of the rider.
Once you’ve selected an appropriate base plan, select an appropriate rider for your specific needs and add value to your policy. Make sure you understand and assess your needs before making the final purchase.