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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?

Anyone looking to build an additional financial safety net for their dependents must consider buying an income benefit rider. Here are a few such categories: 

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

The major documents required for claiming income benefit rider are:

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

While evaluating to add an Income Benefit Rider to your insurance policy, it's important to weigh a few crucial factors to ensure it meets your needs effectively.

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?

No, if offered by the insurer, the income benefit rider can be added to any life insurance policy.

What is the benefit period for an income benefit rider?

The benefit period for an income benefit rider is the period during which it provides income. It varies depending on the policy and the rider. Generally, it is decided at the inception of the policy and ranges from two to five years, but some policies may offer benefits for up to 10 years.

Can I cancel the income benefit rider?

Yes, you can cancel the income benefit rider at any time. However, if you cancel the rider, you may lose the benefits associated with it.

Does the income benefit rider have a waiting period?

Yes, the income benefit rider may have a waiting period before the benefits are paid. However, it depends on the insurer, and some of them might not have it. The waiting period varies depending on the policy and the rider, but it is generally 90 days.

Can the income benefit rider be added to a group life insurance policy?

It depends on the policy, the employer, and the insurance company. Since the employer funds a group policy, some might have restrictions on adding riders to it. However, a few others might give the option to add riders. 

Who gets the Family Income Benefit Rider benefit if the life insured passes away in an accident?

As with other insurance policies, the nominee gets the family income rider benefit in case the insured passes away.

Does the Family Income Benefit Rider allow coverage if the base policy is discontinued?

The Family Income Benefit is a rider attached to the base policy. Hence, if the base policy is discontinued, the rider is also discontinued.

If the life insured passes away after becoming disabled, will the Family Income Benefit cover provide additional benefits?

No, the income benefit rider pays on disability and is terminated after that. So, if the insured passes after the disability, the rider does not pay any extra benefit.

Can I increase or decrease the coverage of an income benefit rider?

Yes, you can typically adjust the coverage of an income benefit rider. Subject to your insurer's terms and conditions, you can make changes to your rider like modify the coverage, add additional features etc.

Does income benefit rider cover only “on-the-job" injuries?

No, income benefit riders usually cover both on and off-the-job injuries, thus providing you with a larger coverage. However, the specifics may vary by policy and insurer.

Is it necessary to add an income benefit rider to my insurance policies?

Adding an income benefit rider depends on your financial security needs and risk tolerance. It's an optional rider, not mandatory but can be beneficial.

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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.