Simplifying Life Insurance in India
What is Income Benefit Rider in Life Insurance?
Income Benefit Rider makes sure that the income keeps coming in those unfortunate cases when the breadwinner meets with an unfortunate condition that hinders their earning capability.
We know that life insurance provides financial protection to your loved ones after your demise. But what if you survive a critical illness or a disability and the earnings stop coming?
That’s when Income Benefit Rider comes to the rescue. It provides a stream of income to the policyholder in covered cases when they are not in a position to earn.
Let's explore the details about this rider and how it can be a beneficial tool in times of need.
What is an Income Benefit Rider?
An income benefit rider is an optional add-on feature or a rider that can be added to the base life insurance policy. It provides the policyholder with a regular stream of income in covered cases, e.g., if they become disabled or critically ill and are unable to work.
This rider typically pays out a fixed percentage of the policy's death benefit in the form of a monthly income for a predetermined period.
At a stage when the family's regular earnings have stopped due to any unfortunate situation, this rider can help the policyholder and their family maintain their standard of living and cover expenses during a difficult time.
It's important to note that this rider may increase the cost of the life insurance policy, but it can provide valuable financial protection and peace of mind.
How Does an Income Benefit Rider Work?
As we read, an income benefit rider provides regular income payments in case of an unfortunate incident like disability. It can be added to the base policy as an optional add-on. This income is a certain percentage of the sum assured of the base policy.
Let's take the example!
Mr Gupta has a 1 Crore term insurance policy for a term of 20 years and a 5-year income benefit rider. The rider conditions specify a monthly income of 1% of the sum assured for a list of conditions.
Unfortunately, in the 7th year of the policy, Mr Gupta survives a road accident and becomes disabled. He underwent a series of surgeries and was medically dependent for almost two years. During these years, he received a monthly benefit of 1 lac per month for 24 months.
Thus, the income benefit rider can be helpful for those who want to ensure that their loved ones have a steady stream of income to cover living expenses, such as mortgage payments, car payments, and other bills, in the event of an unexpected death or disability.
Features and Benefits of Income Benefit Rider
Here are some of the significant features and benefits of an income benefit rider:
1. Guaranteed Income Stream
The income benefit rider guarantees a regular income stream to the policyholder in case of disability, illness or a situation covered under the rider. The amount of this income is decided at the policy's inception and is usually a certain percentage of the sum assured.
This income can be used to cover day-to-day expenses or medical bills. This additional income can be a significant relief, especially during financial hardship.
2. Customizable Coverage
The policyholder can customize the coverage amount and the duration of the income benefit rider according to their needs.
They can decide the income amount and the number of months they will receive this income while buying the rider. This allows them to tailor the rider to their specific financial situation and potential needs.
3. Tax Benefits
As with other insurance, the income benefit rider provides tax benefits, which can help the policyholder save money. The premium paid and the payout received under the rider are tax-free under section 80C and section 10(10D), respectively, as per the prevailing income tax rules.
4. Affordable Premiums
The premiums for income benefit riders are affordable and can be added to the base policy at a nominal cost. This makes it a cost-effective way to ensure financial security for the policyholder and their family.
5. No Impact on Death Benefit
The income benefit rider does not impact the base policy's death benefit. Instead, it pays out a percentage of the death benefit on a regular basis to the beneficiaries for a specified period. The policyholder's beneficiaries will receive the full death benefit even if the rider has been claimed.
Thus, it helps the beneficiary reduce their financial burden during testing times and also keeps the base coverage intact that the life assured had planned for their beneficiaries in case of the unfortunate demise of the life assured.
Overall, the features of an income benefit rider offer a range of benefits that can help the policyholder and their family in times of financial need.
What are the Exclusions of Income Benefit Rider?
Some of the common exclusions under Income Benefit Rider are:
- Disabilities or medical conditions stemming from pre-existing conditions.
- Injuries or disabilities resulting from self-inflicted harm or suicide
- HIV/AIDS, congenital diseases
- War or Military Service
- Alcohol or Substance Abuse
- Medical condition due to participation in criminal or unlawful activities
- Injuries resulting from sports or adventurous activities like skydiving
- High-risk professions like aviation, firefighting, etc.
Who Should Buy an Income Benefit Rider?
1. Individuals with Dependents
If you are the sole breadwinner and have dependents who rely on your income, you must consider adding an income benefit rider to your life insurance policy. It ensures that your loved ones are financially secure and have a regular income even in an unfortunate incident like your critical illness or disability.2. Self-Employed Individuals
Self-employed individuals mostly do not have access to the same income benefits as those who work for an employer. In most cases, their income stops as soon as they are unable to work. An income benefit rider can provide them with a safety net in such circumstances.3. Those with Limited Savings
Savings that we make during our earning days are our saviours during rainy days. But if you have limited savings and are concerned about financial protection, an income benefit rider can provide peace of mind. It ensures that you will have a stream of income to cover your expenses even if you are unable to work for an extended period.4. Individuals with High-Risk Jobs
If you work in a high-risk job, such as a firefighter or a construction worker, you should consider adding an income benefit rider to your life insurance policy. It provides an added layer of protection in case you are injured on the job.Eligibility Criteria for Buying Income Benefit Rider
The major eligibility criteria for buying an income benefit rider, most common across different insurers are:
- A base insurance plan must be in place to add this rider on it.
- Usually, the pre-existing conditions or disabilities are excluded.
- The occurrence of covered disability usually has an upper age limit. Thus, only if the disability occurs before that age, it will be covered in the rider.
- A registered medical practitioner must certify the disability.
- The purchase of rider must be approved by financial underwriting after the assessment of risk.
Documents Required for Claiming Income Benefit Rider
1. Death Certificate
An official document issued by the government that certifies the date, location, and cause of a person's death. It's a primary document needed for the claim.2. Medical Records
These include hospital records, doctor's notes, and any medical tests conducted, which provide evidence of the medical treatment before death.3. Police Reports
For the accident involving a legal investigation, a copy of the police report is required to confirm the circumstances surrounding the accident.4. Insurance Policy
The original copy of the insurance policy document is needed to verify the coverage and terms of the benefit rider.5. Claim Form
A fully completed and signed claim form, as provided by the insurance company, is essential to process the claim.6. KYC Documents of Beneficiary
Proof of identity (Aadhar Card, PAN Card, Voters ID) and address of the beneficiary, along with the bank details are required to ensure the benefit is paid to the rightful person.Factors to Consider When Buying Income Benefit Rider
1. Premium
Consider the premium cost to determine if it fits within your budget without compromising other financial obligations.2. Coverage Amount
Assess the coverage amount. Ensure it provides sufficient financial protection to your beneficiaries in case of your demise due to an unforeseen event.3. Coverage Details
Understanding the coverage, the circumstances that are covered under the rider can help you gauge its usefulness in your personal situation.4. Exclusions
Knowing about exclusions is highly important so that you are aware what conditions are not covered by your insurance.5. Coverage Duration
Another critical aspect, the coverage duration should be aligned with your long-term financial planning and insurance needs.6. Insurer’s Credibility
Choose a credible insurer. Thus, you can be confident about the insurer's ability to fulfil their financial obligations when a claim is made.
Consider these factors so that you can make a more informed decision.
An income benefit rider can be an excellent addition to your life insurance policy, providing a source of income in case of a disability or critical illness. It offers a financial cushion to help you and your family cope with the loss of income, ensuring that your financial goals and lifestyle are not compromised.
So, if you want to protect your income and your family's financial future, you must consider adding an income benefit rider to your policy.
FAQs About Income Benefit Rider
Is the income benefit rider only available for term life insurance policies?
What is the benefit period for an income benefit rider?
Can I cancel the income benefit rider?
Does the income benefit rider have a waiting period?
Can the income benefit rider be added to a group life insurance policy?
Who gets the Family Income Benefit Rider benefit if the life insured passes away in an accident?
Does the Family Income Benefit Rider allow coverage if the base policy is discontinued?
If the life insured passes away after becoming disabled, will the Family Income Benefit cover provide additional benefits?
Can I increase or decrease the coverage of an income benefit rider?
Does income benefit rider cover only “on-the-job" injuries?
Is it necessary to add an income benefit rider to my insurance policies?
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Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
