Saturday, January 7, 2012

What is 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. 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 many factors such as 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.' If this rider is a part of insurance policy, it ensures premiums to be paid by the insured are waived off if the latter becomes unemployed due 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 – 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?

With the increasingly stressful lifestyle, hazardous traffic situations, addition of this rider to an insurance policy could be very helpful. The rider also ensures that in an event of death of the insured during policy term, the policy does not lapse and remains in force even during the Auto Cover period. An 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. The premium paid for this rider also qualifies for tax deduction under section 80D of the Income Tax Act.

How is it useful?

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

In case of 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.

The terms and conditions regarding what constitutes serious illness 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.

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

Source: Yahoo Finance

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