09 Nov, 2021 | Term Life Insurance

What is a Critical Illness Rider in Term Insurance?

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The main purpose of buying a term insurance policy is to secure the financial needs of your family come what may. It pays an assured sum of money, on the death of the Life Insured and brings financial stability to the lives of their family members. As we have always said, Term Insurance is the most important product in our financial portfolio & it must be bought by everyone who has financial dependants and/or unfinished financial liabilities. In addition to the base cover amount, most term plans today, offer a variety of Riders or optional add-ons that can be useful in enhancing the scope of their coverage. 

Riders kick in, under special circumstances, and help by providing additional financial relief when your family faces a specific type of financial risk. They are convenient and they take very little additional effort during the time of purchase. If you buy a specific cover through a rider at the time of buying your term insurance plan, then you will not have to run around searching for separate insurance plans for those specific requirements.  

There are many riders in the market today. Here are some common ones. 

  1. Accidental Death Benefit Rider (ADB) - The ADB rider gives additional Sum Assured to the nominee(s) in case the death of Life Insured happens due to an accident. Those people who spend a lot of time travelling and/or those who are engaged in high risk occupations should consider adding an ADB rider to their term plan. 
  2. Accidental Disability Rider- With this rider, you will receive a sum of money in case you suffer a permanent or temporary disability due to an accident. This amount can be used as income replacement, and/or as a contingency fund to help your family bear the additional costs incurred as a result of your sudden disability. 
  3. Waiver of Premium Rider- The WoP rider could be a low-cost add-on to your Term Insurance. It waives off all future premiums in case of occurrence of the insured event (in this case, it could be a critical illness or accidental disability)
  4. Critical Illness Rider - This is another important Rider that can enhance your Term Insurance coverage and bring the much needed financial relief to your life in case you’re diagnosed with a serious disease listed in the policy. 

In this article, we’ll learn in detail about the Critical Illness Rider. 

Health Insurance and coverage for critical illnesses has become very important in the wake of rising medical costs. Having adequate health insurance cover ensures that you get the required medical care and treatment, should the time come, while keeping your savings untouched. 

While the burden of paying the hospital bills is off your shoulders courtesy - health insurance, there may still be some additional expenses that you will have to pay out of your pocket in case of certain serious illnesses.  These costs could be on account of buying a wheelchair, installing a ramp for the wheelchair, hiring a full-time nurse, long-term medical needs (like physiotherapy or chemotherapy), traveling for regular doctor visits, and so on. Such expenses are usually not covered by health insurance and can lead to a huge financial strain on you and your family. 

Plus - remember, you might lose your source of income - in case you end up taking a less stressful, lower-paying job (or drop out of the workforce entirely). 

Enter Critical Illness Rider 

A critical illness rider kicks in if you’re diagnosed with any of the serious diseases listed in the policy document. In that case, the plan will pay you a lump-sum amount equal to Critical Illness Sum Assured as the benefit amount towards insurance. This amount can save you and your family from the financial burden of the additional expenses that come along with the illness. Most term insurance plans today allow you to add a critical illness cover to the base plan. 

What are the types of Critical Illness Riders? 

There are two types of Critical Illness Riders. For the sake of this example, let’s say you have a term insurance base sum assured of INR 1 Crore, and a Critical Illness Rider of INR 20 Lakhs. Here’s how the two types of Riders work. 

1- Comprehensive Critical Illness Rider

In this rider, you are provided with a cover amount in addition to your term insurance Sum Assured amount. 

In the above example, if the Critical Illness Rider is a comprehensive one - then when you get diagnosed with a serious disease listed in the policy - you’ll get an amount of INR 20 lakhs. Further, in case your death happens during the term of the policy, your family will be paid INR 1 Crore. 

2- Accelerated Critical Illness Rider

On the other hand, in this rider, the sum assured is deducted from your term cover. 

As per the above-mentioned example, if you have purchased an Accelerated Critical Illness Rider and have been diagnosed with a serious illness that is listed in your policy, then you will receive a cover amount of INR 20 Lakhs. However, in case you pass away during the term of your policy your nominee or family will only be paid INR 80 lakhs. 

To avoid such a deduction in your term insurance cover, we recommend you look into term plans which provide you with the benefit of using a comprehensive critical illness rider. 

What are the benefits of a Critical Illness Rider? 

  • Cost-effective - Compared to a Standalone Critical Illness insurance policy, the cost of a Critical Illness Rider stays constant for several years, during the term. This helps you keep the policy in place in the long run. 
  • Documentation - While purchasing a critical illness rider, you do not need to present your documents separately, as you have already submitted them along with the other documents for your base plan.
  • Medical Tests- Once you have gone through the medical tests for your term insurance policy, you do not need to get a separate or any additional medical test to buy a critical illness rider. The same results can be used for determining the terms of the rider as well. 

Overall, critical illness riders are cost-effective and offer convenience/ease of buying compared to the standalone critical illness plans. 

Who should buy a Critical Illness Rider? 

If you are looking for a convenient and cost-effective product that helps make up for the income loss and additional expenses of a serious disease, then buying a Critical Illness Rider would be a good option. With the help of this rider, you can secure both your and your family’s financial future. 

To learn more about the Critical Illness Rider, we would recommend you to read the article Critical Illness Riders - Useful Or Taking You For A Ride?

If you have any further questions you can post your queries on the Beshak Insurance Forum. 

Key takeaways
  1. A term insurance policy will provide financial security to your family if you pass away during the policy term. 
  2. You can also get additional benefits with your existing term insurance cover by opting for riders.
  3. Accidental death benefit rider, accidental disability rider, waiver of premium rider, and critical illness rider are the four most common types of riders.
  4. Health insurance and a critical illness cover has become very important in the wake of rising medical costs because a serious illness can have an even more financial impact than your death. 
  5. If you buy the critical illness rider with your term plan, it will pay a lump sum amount to your family in case you get diagnosed with a disease listed in the policy document. 
  6. This amount can be used to cover all the additional expenses that you and your family will have to bear as a result of the disease.
  7. Critical illness rider is categorised into two - accelerated critical illness rider and comprehensive critical illness rider. You must be very careful about the type of rider you get.
  8. An accelerated rider will simply pay you an advance amount out of your total base cover whereas a comprehensive rider will not affect your base policy cover amount at all.
Team Beshak
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