The insurance business in India isn’t just growing, it’s also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments, Mint features an insurance Q&A every Monday.
What are “riders”? How do they work?
A rider provides additional protection against risk. You can buy a basic policy and add riders on extra protection such as additional accidental death cover, disability cover, critical illness cover and hospitalization benefits.
Though you need to pay an additional charge (premium) towards rider coverage, these are usually lower than individual policies that provide the same benefits. If the event that has been insured against rider coverage occurs, beneficiaries will be paid.
Premiums on riders are lower because the insurance company’s administration costs are lower. In other words, riders provide low-cost pure risk cover. However, they have to be bought with the base policy at inception; you cannot keep adding riders through the tenure of a policy. Riders, if selected properly, can add great value to your life cover.
Are charges for unit-linked products clearly displayed on insurance firms’ websites/sales literature?
All costs for unit-linked products are mentioned upfront in policy documents, websites, as well as product brochures. The costs attached to different policies vary. Some of the expense heads are: fund management charge, mortality charges, administration charge, surrender charge and processing fee on partial withdrawals, reinstatements.
I have heard about the valuation work in life insurance companies. What is it really and what is the regulator’s role in it?
All life insurance companies are required to value their liabilities and assets and make an annual presentation to the Insurance Regulatory and Development Authority (Irda). The regulator checks the financial soundness of the company including its solvency level. The company’s liabilities include its obligations in respect of all policies in its books as on the valuation date including the associated expenses. Irda plays an important role in regulating and defining the methodology of valuation.
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This week’s expert is Bert Paterson, managing director, Aviva India.