Term insurance is a simple and effective way to ensure financial security for your family in your absence. While the primary purpose of term insurance is straightforward—providing a death benefit to the beneficiaries—it can be tailored to offer additional protection through riders.
Riders are optional benefits that can be added to a policy, usually at an extra cost, to provide coverage that extends beyond the basic death benefit. Understanding which riders to get can significantly enhance the value of your term insurance. In this blog, we will explore some of the best riders to consider and how they can benefit you, along with insights into term insurance tax benefits and using a term insurance calculator to estimate your needs.
Table of Contents
1. Critical illness rider
In India, where healthcare expenses are soaring, a Critical Illness Rider is indispensable. This rider provides a lump sum amount if the insured is diagnosed with one of the specified critical illnesses, such as cancer, heart disease, or stroke. This payout can help cover expensive medical treatments and alleviate financial burdens during challenging times.
Example:
Consider you have a term insurance policy with a sum assured of ₹1 crore. Adding a critical illness rider with a sum assured of ₹20 lakhs means if you are diagnosed with a covered illness, you will receive ₹20 lakhs independently of the death benefit. This amount can be a boon for covering medical expenses without dipping into savings or affecting the financial security intended for your family.
2. Accidental death benefit rider
Given the high rate of accidents in India, the Accidental Death Benefit Rider is a wise addition to any term insurance policy. It ensures that in the event of the policyholder’s death due to an accident, the nominee receives an additional sum on top of the base sum assured.
Example:
If your term insurance policy has a sum assured of ₹1 crore, an accidental death benefit rider might add an extra ₹50 lakhs in case of death by accident. This means your family could receive a total of ₹1.5 crores, providing them with additional financial support during a difficult period.
3. Disability rider
A Disability Rider offers protection in case the policyholder becomes permanently disabled due to an accident. This is crucial in India, where disability could mean a significant loss of income. The rider often provides a lump sum payment in case of accidental disability.
Example:
Should you become permanently disabled in an accident, the disability rider could pay a lump sum amount to the life assured. This ensures protection without financial stress.
4. Waiver of premium rider
The Waiver of Premium Rider is especially beneficial if you are concerned about losing your coverage due to an inability to pay premiums following a critical illness or disability. This rider waives off future premiums under specific conditions, keeping your policy active.
Example:
If you are diagnosed with a critical illness and can’t work, the waiver of premium rider ensures you don’t have to pay any more premiums. Your family remains protected under the term insurance policy without any additional financial burden.
Term insurance tax benefit
When it comes to leveraging the term insurance tax benefits, understanding the nuances of Sections 80C and 80D is crucial. While the base premium of your term insurance policy is deductible under Section 80C, any additional premiums paid for health-related riders, such as critical illness or health coverage riders, can be claimed under Section 80D.
To make the most of these tax benefits:
- Ensure you have selected the old tax regime at the time of filing your returns.
- Keep in mind that for health-related riders on your term insurance, if you, your spouse, and your children are below 60 years of age, you are eligible for a deduction of up to ₹25,000 under Section 80D.
- For policies covering elderly parents above 60, the deduction limit under Section 80D is higher, at ₹50,000, allowing for greater tax savings.
By carefully planning your term insurance with health riders, you can not only ensure comprehensive coverage for your family but also optimise your tax savings through deductions under both Section 80C and 80D of the Income Tax Act.
Using a term insurance calculator
To accurately assess how much coverage you need and the impact of riders on your premiums, using a term insurance calculator is essential. These calculators, readily available on insurers’ websites, allow you to input details like age, health status, sum assured, and desired riders. They provide an estimate of your premium, helping you make an informed choice.
Example:
Imagine you are a 30-year-old non-smoker seeking a ₹1 crore term insurance policy with a critical illness rider and an accidental death benefit rider. Using a term insurance calculator, you find the base premium to be approximately ₹7,000 per annum. Adding the critical illness rider might increase your premium by ₹2,000 annually and the accidental death benefit rider by another ₹1,000. Thus, for enhanced coverage, your total estimated annual premium would be ₹10,000.
Conclusion
Choosing the right riders for your term insurance policy can significantly enhance the protection it offers, providing peace of mind for you and your family. Whether it’s safeguarding against critical illnesses, accidental death, or disability, these additional coverages ensure that you’re prepared for life’s uncertainties.
Remember to utilise term insurance calculators to get a clear picture of your premiums and take full advantage of the term insurance tax benefits available to you. With careful planning and consideration, you can tailor a term insurance policy that meets your unique needs and provides comprehensive protection for your loved ones.
