The privatization of the insurance sector has seen an important development – introduction of riders. These riders not only provide benefits but also have tax implications that make them even more attractive.

Private insurers have rolled out certain riders that can be attached to your plans like endowment and money back. The riders like double sum assured and accidental death benefits provide the nominees with an additional sum assured, whereas riders like critical illness, waiver of premium provide the life assured with an enhanced health cover.

A little-known fact is that these riders not only provide you with a comprehensive cover but also provide you with tax benefits and the claim arising out of this rider is also tax-free. The riders get tax benefit under section 88 as it forms a part of the premium paid towards the life insurance, where you receive 20% of the entire premium (inclusive of rider premium) rebate.

However certain health-related riders like critical illness, waiver of premium, major surgical assistance also attract tax benefits under section 80 D. Under this section, the money paid towards this rider is deducted directly from your taxable income. This tax benefit was provided earlier only to the premiums paid towards Mediclaim. Riders like critical illness provide you with a cover for illnesses like heart attack, cancer, kidney and other major organ transplant, stroke. On diagnosis of these illnesses, the insurer provides the claim to the life assured. Riders like waiver of premium provides the cover to the life assured without any contribution from him if he becomes disabled and cannot earn his livelihood.

Insurance riders not only ensure you have an extended cover in place, but also provide dual tax benefits. The tax benefits in particular gain increasing significance as we approach the March 31 deadline for finalisation of all tax-planning.

To know more about how insurance can be used as a financial planning tool and how it can be designed to take care of most of the eventualities of life, please register here.

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