Are disability riders worth buying along with a term insurance plan?

Only a permanent disability due to an accidental injury is considered; also the disability benefit nature differs across plans and so one should understand the benefit before adding that rider to term plan

Kumar Shankar Roy Jun 16, 2020

Insurance riders‘Add disability rider for just Rs 400 more’ — this pop up ad has been seen by most people when buying term insurance plans online. The premium amount for this rider/add-on benefit may vary from insurer to insurer, but the disability symbol consisting of a person sitting on a wheel-chair is quite consistent. Life insurance (term plan) is still bought and sold on fear. Term insurance is a cost-effective product because it allows the family members of the life insured person to get some money to survive in the future in case the policyholder dies during policy tenure.

During the premium payment transaction process, a new risk called ‘disability’ is used as a hook by companies to sell an add-on. Its business and companies will try to get more premium from the same customer. Most people don’t mind paying for such riders because they believe that it brings them another extra shield. What if I don’t die but survive severely disabled? Accidents can disable people and then what happens to my income? Questions such as these come to a potential life insurance buyer, and just a click ‘buy add-on/rider’ makes the dilemma vanish. In this article, we will examine if there are any catches in this rider, what type of benefits do you really get, and much more. Keep reading.

Disability defined

Disabled people can buy a life insurance policy by paying a premium. But if a normal person becomes disabled during policy tenure, a disability rider can fetch money from the life insurer. Different life insurance companies define disability in different manners. But if one has to get a consensus definition, it is a physical condition that limits a person’s movements, senses, or activities. In the content of life insurance, companies offer a benefit if there is accidental total permanent disability.

Notice the use of the words ‘accidental’, ‘total’ and ‘permanent’. If the disability is caused naturally (without an accident being the trigger), it is still a disability but insurance plans won’t give you any benefit. Also, the disability has to be permanent in nature, which means it is beyond the scope of recovery with current medical knowledge and technology.

Besides the permanent nature of a disability, it is only viewed as a disability if it result in at least one of the following: (a) Loss of both eyes; (b) Loss of both arms and both hands; (c) Loss of one arm and one leg; (d) Loss of one arm and one foot; (e) Loss of one hand and one foot; (f) Loss of one hand and one leg; (g) Loss of both legs; (h) Loss of both feet. Some plans also consider permanent inability to hear (loss of hearing) and permanent inability to see (loss of vision).

If the disability is due to amputation/ dismemberment, loss of hand usually means amputation/ dismemberment above wrist. Similarly, loss of arm will mean amputation/ dismemberment above elbow, loss of feet will mean amputation/ dismemberment above ankle and loss of leg will mean amputation/ dismemberment above knee.

As you can see, merely being forced to use a wheel-chair is not technically a disability!

Not all ‘accidents’ are accidents

Philosophers say nothing is an accident, and that could be a good thing for holding up insurance claims.

Curiously, for a life insurance claim, accidents are strongly defined. An accident is a sudden unforeseen and involuntary event caused by external and visible means. The disability suffered by the person must be linked to this accident. Anything else is not viewed as an accident for which the life insurer will pay a claim. Atleast, there is no disability benefit for the policyholder/nominee if the insurer feels ‘the accident is not an accident’!

Permanent disability due to accident caused by attempted suicide or self-inflicted injuries, while sane or insane, is not entertained. If permanent disability happens due to an accident under the influence of any narcotic substance or drug or intoxicating liquor, it is also not approved. Accidents and side-effects caused due to engaging in aerial flights including parachuting and skydiving are also not entertained.

It would do you good if you read what are the exclusions when it comes to accidents that cause permanent disability. Even disability due to accidents while taking part in or practicing for boxing, caving, climbing, horse racing, jet skiing, martial arts, mountaineering, power boat racing, underwater diving, yacht racing or any race, trial or timed motor sport is a no-no.

Do note that those employed in military, para-military, security or police organizations cannot get the disability benefit even if they suffer one due to a genuine accident. These professions are held as hazardous.

Time between accident and disability

Indian life insurance companies pay out disability benefits only when the disability is caused by an accident that happened within a time-frame. It’s usually 180 days or 6 months. This means if you have a serious accident that causes a disability that manifests only after 7 months, tough luck getting a disability claim.

Also, some companies have a window within which you have to inform about a disability claim. In those plans, claim intimation should be received in writing (within 60 days of occurrence of the accident), which is causing total disability of the life assured. If you fail to inform within that time, your claim may be denied even though you have an actual admissible permanent disability.

Whether a permanent disability was caused by an accident etc. and whether it is an admissible claim is usually decided by empanelled doctors of the insurer. They will write that permanent disability has been triggered by accident only if the person is unable to perform a few of the following activities of daily work:

* Mobility (the ability to walk a fixed distance on flat ground),
* Washing (the ability to wash in the bath or shower including getting into and out of the bath or shower),
* Dressing (the ability to put on, take off, secure and unfasten all garments and, as appropriate, any braces, artificial limbs or other surgical appliances),
* Toileting (the ability to use the lavatory or otherwise manage bowel and bladder functions so as to maintain a satisfactory level of personal hygiene),
* Feeding (the ability to feed oneself once food has been prepared and made available),
* Bending (the ability to bend or kneel to touch the floor and straighten up again and the ability to get into a car, and out again),
* Climbing (the ability to climb up a flight of a fixed number of stairs and down again, using the handrail if needed),
* Lifting (the ability to pick up an object of a particular weight at a fixed height and hold for a fixed time before keeping it down)
* Writing (the manual dexterity to write legibly using a pen or pencil, or type using a desktop personal computer keyboard etc.), and
* Blindness (permanent and irreversible loss of sight to the extent that even when tested with the use of visual aids, vision is measured at 3/60 or worse in the better eye).

Typically, each company uses a rule that one must be unable to perform 3 out of 6 of the above activities.

Disability benefit types

You pay Rs 200 to Rs 500 per year as a disability rider premium, and you should know what you get as benefit. The disability rider allows you to cover an additional risk to your income, but the benefit may vary across companies and term plans.

Some companies bundle accidental death benefit and dismemberment/disability benefit. These can cost upto Rs 1,000 a year in additional premium. If that is the case, you are getting two riders instead of just the disability one.

Insurance companies pay one type of benefit. The disability benefit variants are:

* Basic sum assured paid lump sum – Here the disablement benefit is equal to the basic sum assured of the main policy

* Basic sum assured paid in a fixed number of equal annual installments. This is an deal income replacement mode.

In both the above cases, following an accidental disability claim, the death benefit under the rider is reduced by the amount of disability claim paid. So whatever money is paid, if the disabled person in future dies the death benefit is reduced to the extent of the claim already paid due to disability.

* Future premium waiver – Here in case the policyholder becomes totally and permanently disabled as a result of accident, this waiver benefit keeps the policy alive by waiving all future premiums on the policy. All the future basic premiums are paid by life insurance as and when due.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at [email protected].

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