Insurance: Waiver of premium rider

With the growing uncertainty of life, getting an insurance policy has become a must for almost every individual. When you take an insurance policy, you also tend to add 'riders' to the policy.

Riders are the additional benefits that you may buy and add to your policy. They are options that allow you to enhance your insurance cover, qualitatively and quantitatively. Riders can be mixed and matched based on one's preferences for a small additional cost.

One size does not fit all

A one-size-fits-all approach does not apply to insurance policies. Therefore, the kind and number of riders added to an individual's insurance policy depends on the many factors such as the individual's health, future plans, purpose of the insurance etc.

One of the most popular and important riders added to an insurance policy is the 'Waiver of Premium' rider. If this rider is a part of one's insurance policy, it ensures that the premiums to be paid by the insured are waived in the event that the insured becomes 'completely disabled' or loses his source of revenue because of unemployment owing to an injury or sickness.

In such a situation, even though the premiums are not paid by the insured, the policy does not lapse.

What is a waiver of premium?

A waiver of premium is an extra option life insurance companies provide you with on top of your purchased life insurance policy at an additional cost.

This offers protection and cover for your premiums if you should fall seriously ill or incur injuries that leave you impaired -- in a situation where you cannot earn. In such an unfortunate event, the life insurance company will become responsible to pay the premiums which you were expected to pay.

The best part about this rider is that anyone who takes up the insurance policy can effectively add this rider to the policy. The amount of premium to be paid depends on the premium you pay on the base policy and on other riders. The higher the premium on the base policy, and the more the riders you add, the higher will be the premium you pay on this rider.

Is it worth it?

Many ask whether this rider is worth being latched on to the base policy. With the increasingly stressful lifestyle, hazardous traffic situations and a horde of other factors, addition of this rider to an insurance policy would be very helpful.

This rider also ensures that in the event of death of the insured during the term of the policy, the policy does not lapse and remains in force even during the Auto Cover period. The Auto Cover Period is a term of two years during which full death cover continues even if the insured has not paid premiums - subject to at least two full years' premiums having been paid.

One other feature of this rider that bears attention is the fact that the premium paid for this rider qualifies for tax deduction under section 80D of the Income Tax Act.

How is it useful?

This rider is especially useful in a child insurance policy as this primarily has been set up in place to provide money for your child in the hour of his or her need.

In the case of a child insurance policy, where you are ensuring your child receives a sum of money at a certain pre-defined age, this will ensure that the process is uninterrupted and premium payment is continued, so that your child receives the money at the pre-determined date.

Imagine the scenario if do not opt for this and end up in an unfortunate situation, where you are unable to pay your premium and the policy lapses. Then it would be no good to anybody, so to have this drawback plugged, its better to pay up the additonal cost to ensure continuity in the premium payment.

The terms and conditions regarding what constitutes serious illenss or injury and conditions regarding the time frame when the premium payment starts by the insurer, etc are defined by the insurance company and may vary from one company to another.

Be sure to research on this thoroughly and understand the clauses and conditions of the insurance company until you choose an option offered by a company with which you are most comfortable with. 

Usually, the premium paying term for the rider is throughout the benefit period but a few companies restrict the time frame to the policy owner attaining a particular age or for a maximum duration of 25 to 30 years.

Therefore, choose riders according to your need and budget. Sometimes it is the choice we make that will help us through tough times.