Skip to main content

Insurance - Cost or cover?

In the first place, your decision to buy riders should depend on your insurance needs. You should not buy them just because they are available at a low cost.
 

Take for instance the critical illness benefit. A policyholder who has this cover gets an amount equal to the sum assured if he is diagnosed as having one of the critical illnesses included in the policy contract. For a 40-year old healthy person having a cover of Rs5 lakh, the cost of such a rider starts from Rs3,000 and can go as high as Rs9,500. In comparison, a standalone critical illness policy (cover for Rs5 lakh for a 40-year old) starts from Rs1,500 and goes up to Rs7,500.

 

On the face of it, buying a rider may appear more desirable because of its lower cost. But the standalone policy covers a wider set of critical illnesses. In case of such a policy, you can also get a higher sum assured. Critical illness riders come with a lower limit on sum assured (determined by the value of the base policy). Further, their structure is rigid and there are limitations on renewal of the rider. Therefore, when you look deeper, a standalone product makes more sense despite its higher cost.

 

Accidental Death & Disability (AD&D) Benefit is another rider offered by many insurers. This rider pays the sum assured in case of the insured's death or total and permanent disability due to an accident. However, the rider may not provide for loss of income due to temporary disablement, which is a risk that is more common. This is a state, which in some instances is worse than death, as it deprives you of the ability to earn.

 

A standalone personal accident policy from a general insurer offers more comprehensive cover. Not only does this policy cover for death due to accident, partial and total disability, it also covers temporary total disability and pays out a weekly compensation of 1 per cent of the sum assured up to a maximum of 104 weeks (two years). What is more, the size of the cover in this policy is not restricted by the sum assured on the base policy. In case of a standalone policy, you have the flexibility to hike your cover depending on your income, profession and age.

 

The arguments that we have stated above also apply to the other popular riders such as hospital cash benefit and term rider.

 

Exception rules

Perhaps the only rider that has merit is the waiver of premium rider. This rider waives future premiums if the insured dies or is disabled and is unable to continue paying the premiums. If this happens, the insurance company pays the remaining premiums. This is by far the most useful rider. Parents buying insurance plans to provide for their child's financial future should certainly consider this rider.

 

Probability is the foundation on which insurance rests: here the risk of a few is spread over many. With the risks that one is exposed to in life on the rise, insurance is the best recourse for managing life's vagaries. An all-in-one bundled insurance plan does not necessarily offer the desired risk cover. Instead, buying a portfolio of insurance covers may be a better approach. By including a combination of term cover, personal accident cover, standard health insurance and critical illness cover, an individual can make his insurance portfolio complete.

 

One need not buy all these four covers at one go; scale up according to your insurance needs, age and income. For instance, one could start with a health plan, then buy a term plan (post marriage), then a personal accident plan, and later, as one grows older, add a critical illness policy. The key is to gradually acquire a set of policies that provide comprehensive protection against insurable risks.

 

Going alone pays


Combing a rider with your life insurance cover offers you convenience. However, this may not be what you need. The rider may not help you when you need it most. Use the standalone approach to achieve your insurance needs without compromising on the extent of cover you get.

 

Critical illness


Standalone critical illness policies cover a comprehensive list of critical diseases. They impose no restrictions on the extent of cover.

 

Rider Roulette


Do not add riders to your policy just because of their low cost. Buy them only if they satisfy your insurance needs.

 

Level term cover: A term insurance policy in which the life cover can be enhanced for a limited period. The sum assured offered on these riders can not exceed the value of the sum assured on the base policy.

 

Critical illness or surgery rider: This rider offers a lump sum benefit to the insured if he is diagnosed as having a critical illness like cancer or stroke, as specified in the contract of the policy.

 

Accidental death or disability benefit rider: It provides a lump sum cover to the insured for death or disability due to an accident.

 

Waiver of premium rider: This is an essential part of child insurance policies. This rider waives off subsequent premiums if the insured or the earning parent dies or is disabled and is unable to continue paying the premiums. If this happens, the insurance company pays the remaining premiums.

 

Hospital cash benefit rider: It provides a pre-specified sum of cash for each day that the insured is hospitalised. The maximum number of days of hospitalisation during the entire term for which this rider is available is specified in the policy.

 

Riders typically cover only a few critical illnesses such as stroke, heart attack, cancer, kidney failure, among others. Also, the policy guidelines restrict the premium payable (and hence the sum assured you can avail) on such a rider. This usually depends on the type of policy and its tenure.

 

Term rider


Term cover is the most cost effective and purest form of life insurance. It should ideally be bought by anyone looking for a life cover. Adding it as a rider is restrictive as you can only get a limited amount of cover.

 

Accidental death and disability benefit
A standalone policy of this type comes with a temporary total disablement cover, which is most useful. For instance, a fracture can prevent you from working for weeks. In such a case, this policy pays a weekly allowance that is linked to the insured's income. Many riders do not offer this.

 

Hospital cash benefit


This rider pays a fixed amount per day for the number of days one is hospitalised. But it comes with a number of exclusions hidden in the fine print. One may be better off creating an emergency fund that can be utilised at the time of hospitalisation.

 

Waiver of premium


This is perhaps the only exception where a rider offers great value. Include it with child policies. This rider scores by waiving all future premiums on the policy without compromising on the benefits

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

 

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver Mutual  Funds  Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

 

Popular posts from this blog

Birla SunLife Manufacturing Equity Fund

The Make in India program was launched by Prime Minister Naredra Modi in September 2014 as part of a wider set of nation-building initiatives. It was devised to transform India into a global design and manufacturing hub. The primary motive of the campaign is to encourage multinational as well domestic companies to manufacture their products in India. This would create more job opportunities, bring high-quality standards and attract capital along with technological investment to bring more foreign direct investment (FDI) in the country.   Why India as the next manufacturing destination?   The rising demand in India along with the multinational's desire to diversify their production to include low-cost plants in countries other than China, can help India's manufacturing sector to grow and create millions of jobs. In the words of our Honourable Prime Minister- Mr. Narendra Modi, India offers the 3 'Ds' for business to thrive— democracy,...

Total Returns Index brings out real Equity Funds Performers

From February, equity mutual funds have to change their benchmarks to account for dividend payments. Until now, funds used price-based benchmarks alone. TRI or total return indices assume that dividend payouts are reinvested back into the index. What this does is lift the overall index returns, because dividends get compounded. For example, the Sensex TRI index will consider dividend payouts of its constituent companies while the Nifty50 TRI index will consider dividends of its constituents. Using TRI indices as benchmarks comes on the argument that an equity funds earn dividends on the stocks in its portfolio, which they use to buy more stocks. Therefore, using an index that also considers dividend reinvestment would be a more appropriate benchmark. Shrinking outperformance With a stiffer benchmark, it is obvious that the margin by which an equity fund outperforms the benchmark would shrink. Rolling one-year returns from 2013 onwards, the average margin by which largecap funds out...

Stock Review: Havells

HAVELLS India's stock performance has been muted in the past three months, in line with the weak broader market. But, given the turnaround in its overseas subsidiary and the launch of new products in its consumer durable business, the company's stock may undergo a re-rating.    Havells is India's leading consumer electrical goods company, with consolidated sales of . 5,527 crore in the past four quarters. Its wholly-owned subsidiary Sylvania, which makes lighting and fixtures, has established brands in European, Latin American and Asian markets. Sylvania repre sented nearly half of the company's consolidated revenues in the first half of FY11.    Sylvania's poor financials hit Havells' consolidated performance in FY10. But, this has changed in the cur rent fiscal. Havells has reduced fixed costs of Sylvania by exiting from unprofitable businesses and outsourcing manufacturing to low-cost locations such as India and China. In the September 2010 quarter, Sylv...

Kisan Vikas Patra - KVP

  Kisan Vikas Patra (KVP) First launched in 1988, the Kisan Vikas Patra (KVP) is one of the premier and popular saving scheme offering from the Indian Postal Department. This product has had a very chequered history- initially successful, deemed a product that could be misused and thus terminated in 2011, followed by a triumphant return to prominence and popular consumption in 2014. The salient features of KVP are as follows- The grand USP- Money invested by the applicant doubles in 100 months (8 years, 4 months). KVPs are available in the following denominations- Rs.1000, Rs.5000, Rs.10,000 and Rs.50,000. The minimum purchase value for the KVP is Rs.1000. There is no maximum limit. KVPs are available at all departmental post offices across India. These certificates can be prematurely encashed after 2 ½ years from the point of issue. KVPs can be transferred from one individual to another and from one post office to another. ----------------------------------------------------- Inve...

Mutual Fund Review: Reliance Regular Savings Equity

    Despite high churn, Reliance Regular Savings Equity has managed to fetch good returns   In its short history, this one has made its mark. Though its annual and trailing returns are amazing, the fund started off on a lousy note (last two quarters of 2005). It managed to impress in 2006 and was turning out to be pretty average in 2007, till Omprakash Kuckian took over in November 2007 and wasted no time in changing the complexion of the portfolio. Exposure to Construction shot up to 28 per cent with almost 21 per cent cornered by Pratibha Industries and Madhucon Projects . Exposure to Engineering was yanked up (18.50%) while Financial Services lost its prime slot (dropped to 6.69%) and Auto was dumped. That quarter (December 2007), he delivered 54.66 per cent (category average: 25.70%).   When the market collapsed in 2008, thankfully the fund did not plummet abysmally. But even its high cash allocations could not cushion the fall which hovered around the category average. ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now