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What is Income Benefit Rider in Term Life Insurance?

An income benefit rider with term insurance ensures that a person’s family is financially secure even if the insured person passes away. This rider provides the family with a regular income.

If the policyholder dies or survives a critical illness or a disability during the policy term, the family receives monthly payments for a set period, similar to the insured person’s monthly income.

The main advantage is that the family can maintain their financial stability and meet daily expenses, even without the insured person’s support.

What is an Income Benefit Rider in Term Insurance?

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 Term Insurance with Income Benefit Rider Work?

An income benefit rider in term insurance, often added to annuity contracts, provides a guaranteed income stream for life, regardless of the annuity’s performance. Here’s a breakdown of how it works:

Additional Fee: You pay an extra fee in addition to your annuity premium. This fee is usually a percentage of the annuity’s value.

Guaranteed Income: In return, the insurance company guarantees a minimum annual withdrawal amount for your lifetime. This ensures you have a reliable income, even if the annuity’s value drops due to market conditions.

Guaranteed Lifetime Withdrawal Benefit (GLWB): This benefit allows you to withdraw a percentage of your original investment annually for life, offering flexibility and control over withdrawals.

Guaranteed Minimum Income Benefit (GMIB): Guarantees a minimum income but requires you to annuities, or lock-in, the annuity to receive payments.

Benefit Base: The income is calculated based on a “benefit base,” which grows at a specified rate (e.g., 5-7%) during the deferral period. This base is used to determine your payout once you start receiving income.

Payout Rate: The payout rate is a percentage of the benefit base that you receive annually. This rate varies by insurance company and product.

Flexibility and Security: These riders provide financial security by ensuring you won’t outlive your savings and protect against market volatility.

Understanding Income Benefit Rider in Term Insurance with Illustration

Mr Gupta has a 1 crore term insurance for 40 years and an income benefit rider. The rider conditions specify a monthly income of 1% of the sum assured for a list of conditions.

Scenario 1: Career Setback

Suppose Mr Gupta faces job loss due to company downsizing. His term insurance policy with an income benefit rider will provide him with a monthly income, helping him cover his living expenses while he searches for a new job.

Scenario 2: Disability

Suppose Mr Gupta is involved in a car accident that resulted in a temporary disability. The income benefit rider provides a steady income during his recovery period. This income helps him manage his medical bills and daily expenses, ensuring he can focus on rehabilitation without financial stress.

Scenario 3: Preparing for Retirement

As Mr Gupta approaches retirement at age 60, he starts to worry about whether his savings will be sufficient. According to his policy, the income benefit rider begins to provide him with additional monthly income. This extra income supplements his retirement savings, allowing him to enjoy a comfortable retirement, travel, and pursue hobbies without financial concerns.

Scenario 4: Long-Term Care Needs

Suppose Mr Gupta developed a chronic illness that requires long-term care. The income benefit rider continues to support him by providing a monthly income that helps cover the costs of his care. This ensures he can afford quality care without depleting his savings or placing a financial burden on his family.

Disclaimer: The above scenarios are hypothetical examples created for educational purposes only and do not represent a real-life scenario. Please read your policy documents to understand the terms and conditions clearly.

Importance of Purchasing Term Insurance with Income Benefit Rider

An Income Benefit Rider can be a valuable addition to a term insurance policy, especially if the insured person is concerned about their family’s financial stability in their absence. Here are several reasons why you might consider adding this rider to your policy:

Income Benefit

If the insured person passes away during the policy term, this rider provides regular payments to the family. These payments help replace the lost income and ensure financial stability.

Financial Security

This rider offers financial security to the insured person’s family by providing regular payments. This helps the family maintain their lifestyle and cover daily expenses even after the insured person’s death.

Economical Option

Adding this rider to a term insurance policy is cost-effective. It enhances the policy’s benefits at a relatively lower than those for the main policy, making it an affordable choice. Even with the small extra cost, it provides significant financial protection for your family.

Eliminates the Need for Multiple Policies

With this rider, you might not need multiple insurance policies. It extends the coverage of your term insurance, making it more comprehensive.

Features and Benefits of Income Benefit Rider in Term Insurance

Here are some of the significant features and benefits of an income benefit rider in term insurance:

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.

Who Should Buy a Term Insurance with Income Benefit Rider?

Anyone looking to build an additional financial safety net for their dependents must consider buying an term insurance with 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.

What are the Exclusions Associated with Income Benefit Rider in Term Insurance?

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.

Eligibility Criteria for Buying Term Insurance with Income Benefit Rider

The major eligibility criteria for buying a term insurance with income benefit rider, most common across different insurers are:

Criteria	Limit
Minimum Entry Age	18 Years
Maximum Entry Age	65 Years
Maturity Age	Up to 75 Years
Maximum Rider Sum Assured	There is no limit, subject to satisfactory underwriting
Maximum Rider Policy Term	Consistent with the base policy period
Base Insurance Plan	Must have a base insurance plan in place
Health Conditions	Pre-existing medical conditions or disabilities are typically excluded
Certification	Disability must be certified by a registered medical practitioner

Documents Required for Buying Term Insurance with Income Benefit Rider

To apply for a term insurance with income benefit rider, you typically need to provide the following documents:

Document	Description
Application Form	A fully completed and signed application form for the income benefit rider.
Proof of Identity	Aadhar Card PAN Card Voter ID Driving Licence



Proof of Address	Utility Bills Bank Statements Rental Agreements to verify your address


Base Insurance Policy	The original or a copy of the base insurance policy to which the rider will be attached.
Medical Records	Relevant medical records or health declarations required by the insurer.
Income Proof	Salary Slips Bank Statements Income Tax Returns


Photographs	Recent passport-sized photographs as required by the insurer.

Note: Depending on the insurer's requirements, each section requires one or two documents as proof for an income benefit rider.

Steps to Add Income Benefit Rider in Term Insurance

Here are the simple steps to add an Income Benefit Rider when purchasing term insurance:

Step 1

Compare and look for term insurance policies that offer an Income Benefit Rider.

Step 2

Use online tools or contact insurance providers to get quotes for term insurance with the Income Benefit Rider included.

Step 3

When filling out the term insurance application, select the option to add the Income Benefit Rider.

Step 4

Complete the application with your personal, medical, and financial information.

Step 5

Carefully review the policy details, sign the application and submit it with any required documents.

Step 6

Pay the initial premium to activate your policy and the Income Benefit Rider.

Step 7

After processing, you will receive confirmation from the insurer that your policy, including the Income Benefit Rider, is active.

Factors to Consider When Buying Term Insurance with Income Benefit Rider

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

Premium

Consider the premium cost to determine if it fits within your budget without compromising other financial obligations. You can use a term insurance calculator to estimate your premium based on coverage amount, age, and policy term.

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.

Coverage Details

Understanding the coverage, the circumstances that are covered under the rider can help you gauge its usefulness in your personal situation.

Exclusions

Knowing about exclusions is highly important so that you are aware what conditions are not covered by your insurance.

Coverage Duration

Another critical aspect, the coverage duration should be aligned with your long-term financial planning and insurance needs.

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.

How to Claim Term Insurance with Income Benefit Rider?

Here are the steps to claim a term insurance with income benefit rider:

Step 1: Inform your insurance company about your intent to claim.

Step 2: Fill out the claim form provided by the insurer.

Step 3: Provide necessary documents like proof of income, identification, and any other required paperwork.

Step 4: The insurer will review your claim and verify the details.

Step 5: Once approved, you will start receiving the income benefits as per the policy terms.

Documents Required for Claiming Term Insurance with Income Benefit Rider

The major documents required for claiming term insurance with income benefit rider are:

Documents	List
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.
Medical Records	These include hospital records, doctor's notes, and any medical tests conducted, which provide evidence of the medical treatment before death.
Police Reports	For the accident involving a legal investigation, a copy of the police report is required to confirm the circumstances surrounding the accident.
Insurance Policy	The original copy of the insurance policy document is needed to verify the coverage and terms of the benefit rider.
Claim Form	A fully completed and signed claim form, as provided by the insurance company, is essential to process the claim.
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.

An income benefit rider can be an excellent addition to your term 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 Term Insurance with 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 in term insurance?

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 in term insurance?

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 term insurance with 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 term insurance coverage with 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 term insurance with 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 term insurance policies?

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

What is the minimum income benefit rider in term insurance?

A minimum income benefit rider, often found in annuity contracts, guarantees that the policyholder will receive a minimum income level, regardless of market conditions. This rider ensures a steady income stream, even if the investments within the annuity perform poorly.

Who should consider adding this rider?

It’s ideal for individuals with dependents who rely on monthly income, such as salaried professionals or sole breadwinners, especially when paired with health insurance for complete protection.