Life Insurance Policy Riders
Questions:
- What are the common riders?
- What are convertible term riders?
- What are accidental death riders?
- What are disability riders?
- What is temporary disablement?
- What is temporary total disablement?
- What is temporary partial disablement?
- What is waiver of premium?
- What are dismemberment riders?
- What are hospital and surgical riders?
- What are hospitalisation benefit riders?
- What are payor benefit riders?
- What are payor protection benefit riders?
- What are family income benefit riders?
- What are medilife riders?
- What are cash dividend riders?
- What are reversionary bonus riders?
1. What are the common riders?
The common riders include those covering accidental death, dismemberment, disability, hospitalisation, waiver of premium, term insurance, cash dividend, reversionary bonus and medical living assurance.
Some life insurers do not sell cash dividend and reversionary bonus riders because they are sold as part of their basic plans.
2. What are convertible term riders?
Convertible term riders are term riders that give the policyholder the right to convert to a whole life or endowment plan of insurance.
Please click on term insurance and riders for further information.
3. What are accidental death riders?
Accidental death riders are riders that provide death benefits if the cause of death is by accident (caused by external, violent, physical, and accidental means) and not by natural means.
Some of the common exclusions include:
- Death as a result of self infliction, committing suicide, poisoning, or inhaling gas, whether sane or insane
- Death as a result of childbirth or pregnancy
4. What are disability riders?
Disability riders provide for the payment of a certain sum of money in the event of disability of the life assured. The payments are usually made in installments, and sometimes a lump sum will be made at the end of a certain period if disability persists. In general, the amount of benefits depend on the circumstances which resulted in the disability of the life assured and the degree of disability. There are basically 4 different variations in cover provided by disability riders:
- Temporary total disability
- Temporary partial disability
- Permanent total disability (Total and permanent disability)
- Permanent partial disability
5. What is temporary disablement?
Temporary disablement is disability which is suffered only temporarily. The benefits for temporary disablements may be classified into temporary total disability or temporary partial disability. It is usual for the benefits to be payable only when the disability is sustained for a minimum period of time.
6. What is temporary total disablement?
Temporary total disablement are disabilities that prevent the insured from performing all of his/her job functions. This means that the insured is totally disabled, but only temporarily. The benefits are often in the form of weekly payments of a fixed sum stated in the policy.
7. What is temporary partial disablement? Temporary partial disablement occurs when the insured is only capable of performing only part of his/her usual occupation after the occurrence of his/her injury. The disability is both partial and temporary. The benefits are often in the form of weekly payments of a fixed sum which is stated in the policy. However, the rate payable is lower than that payable under temporary total disablement.
8. What is waiver of premium?
Waiver of premium is the term used when the insurer gives up its right to collect a policy's premiums on the occurrence of some specified event. This waiver may be until the expiry or maturity of the policy or until the insured reaches a specific age. There are basically 2 versions of the waiver of premium benefit:
- Waiver of premium for disability benefit. This provides that the insured does not need to make any further premium payments if the insured becomes unable to work because of an accident or injury
- Waiver of premium for payor benefit. This provides that the policyowner (or payor) will be exempted from making any further premium payments if the policyowner, not the insured (usually the child), dies or becomes disabled
9. What are dismemberment riders?
Dismemberment riders are riders that provide benefits on the occurrence of dismemberment (and usually on death also). The dismemberment indemnity can cover any thing from the loss of two or more members to the loss of one toe. Accordingly, the benefits paid are in line with the extent of the loss. The benefits paid are usually a fixed percentage of the face amount of the rider. For example, the loss of two or more members would yield the full face amount of the rider to be payable whereas the loss of a toe (other than a big toe) would yield 2.5% of the face amount to be payable.
10. What are hospital and surgical riders?
Hospital and surgical riders provide benefits covering expenses incurred during hospitalisation due to sickness or accident caused by bodily injury or otherwise. These riders usually provide the medical benefits on a reimbursement basis, in accordance with a specified schedule of benefits. There are basically 2 types of reimbursement:
- Reimbursement with maximum benefit limits for each category of hospital expenses.
- Reimbursement on "As Charge" basis
Most companies have now imposed a minimum co-insurance amount/deductible to be borne by the customer for each hospitalisation claim.
Furthermore, there is an aggregate maximum benefit amount that can be claimed annually or throughout the term of the policy.
Please note that most hospital and surgical riders would treat a subsequent visit to the hospital (within a certain period from the first visit) as a continuation of the first visit in determining the amount of benefit to be paid, if the cause of the subsequent visit is the same as or related to that of the first visit.
11. What are hospitalisation benefit riders?
Hospitalisation benefit riders provide, in the event the insured is hospitalised, and regardless of the actual hospital expenses incurred, a daily benefit equal to an elected fixed amount. The benefit is payable up to a maximum number of days.
The rationale for hospitalisation benefit riders is to compensate the insured for the loss of income that he/she would have earned if he/she were not hospitalised. Therefore, the benefit payable has no regard for the actual hospital expenses incurred. It primarily takes into account the loss of income suffered by the insured. Compared to hospital and surgical riders in which the benefit payable depends on the actual hospital expenses incurred, there is usually a minimum age at entry for hospitalisation benefit riders. This is because people below the minimum entry age are not usually gainfully employed, and hence, there would be no loss of income if they were admitted to the hospital. However, these people can be covered for hospital and surgical benefits.
Please note that most hospitalisation benefit riders cover periods of rest at home as well as in the hospital. The rationale for this is the same as for the above; the insured still suffers a loss of income while resting at home.
12. What are payor benefit riders?
Payor benefit riders are riders that provide for the waiver of premium on a juvenile policy when the policyowner dies or becomes totally and permanently disabled.
13. What are payor protection benefit riders?
Payor protection benefit riders provide protection to the policyowner in the form of a lump sum payment to the beneficiary, equal to the face amount of the rider. These riders usually cover the death of the policyowner, but could also include cover for total and permanent disability. The lump sum benefit is usually used to pay the premiums for the juvenile policy of which the policyowner was the payor. As such, these riders can only be attached to juvenile policies.
14. What are family income benefit riders?
Family income benefit riders provide a regular stream of income to the family members of the insured when he/she dies. The first installment commences immediately after the death of the insured and the benefits will be discontinued after a certain date.
Therefore, the earlier the insured dies, the more the insurer will be liable to pay. These riders are essentially a form of decreasing term insurance.
15. What are medilife riders?
Medilife riders are riders that provide benefits on the diagnosis or occurrence of a dread disease. The benefits are usually payable in one lump sum although there are some medilife riders that provide an initial benefit amount (equal to a fixed percentage of the face amount) on diagnosis or occurrence, and subsequently, a monthly benefit amount is payable until the full face amount is exhausted.
These riders usually have a waiting period to protect against moral hazards. It could be anywhere from 30 to 90 days after the issue date of the rider. Furthermore, the insured usually has to survive for a certain number of days after the date of diagnosis or occurrence. This is because the benefits of the medilife riders are meant for the insured (but not the beneficiary) to cover for hospital and surgical expenses incurred, and the loss of income suffered. The benefits would not be needed if the insured were not alive. You might be thinking that the beneficiary (or beneficiaries for that matter) will still need the financial support, especially if the insured was the breadwinner. However, this need should be covered by the insured's basic plan of insurance.
The risks which are usually excluded are:
- Human Immunodeficiency Virus (HIV) antibody, either before or after the issue date of the rider;
- Life-threatening disease which is due to a pre-existing condition at the issue date of the rider; and
- Life-threatening disease which is caused by alcohol or drug abuse, attempted suicide, or
intentional self-inflicted injury, whether caused directly or indirectly.
16. What are cash dividend riders?
Cash dividend riders are riders that participate in the profits of the insurance company. These riders provide cash dividends at the end of every year. These cash dividends can either be withdrawn or kept with the company. If they are kept with the company, they will earn interest at a certain specified rate.
In addition, there will be persistency and terminal cash dividends as well. The former is paid after the rider has been in force for a certain period of time and continues to be paid every, say, five years as long as the rider is still in force. The terminal cash dividends are payable on the death of the insured, if the rider has been in force for a certain period of time.
The cash dividend payments are not guaranteed and they depend on the results of the annual actuarial valuation of the company.
The company actuary will then determine the payments. However, sometimes the first few cash dividend payments, which are payable annually, are guaranteed.
17. What are reversionary bonus riders?
Reversionary (The word reversionary means that the bonuses will revert back to the policyholder at the end of the rider term) bonus riders are riders that participate in the profits of the insurance company by way of annual reversionary bonuses. These bonuses can either be on a simple or compound interest basis; usually the latter basis is used. They are kept with the company until the rider is terminated. Should the bonuses be withdrawn by the policyholder, only the surrender value (or cash value) of the bonuses would be received.
In addition, there will be claims and maturity bonuses as well. The claims bonus would be payable on the death of the insured, provided the rider has been in force for a certain period of time. On the other hand, the maturity bonus would be payable on maturity only.
Usually, the above bonuses are not guaranteed.