Should you get insurance riders?

If you’ve only got a minute:

• Insurance riders are add-ons to your basic policy that provide additional benefits.
• Insurance riders can be a cost-effective option to increase coverage without taking up extra insurance policies.

Many people find insurance complex and have difficulty understanding the policies they own. In a nutshell, an insurance policy is a contract in which an insurer indemnifies another against losses from specific situations. Some examples of insurance policies are life insurance and health policies. They are used to hedge against the risk of financial losses in specific situations.

What are Insurance Riders?

Insurance riders are add-ons to your basic policy, that offer additional benefits. They help you to customise your insurance cover and maximise the benefits to meet your needs. For instance, hospitalisation insurance riders provide a buffer by setting a cap on the deductible or co-insurance amount that an insured needs to cough up before the insurer pays the balance. While some are low in cost since they require minimal underwriting, others like hospitalisation riders have gone up significantly over the years.

Common insurance policies with riders:

• Car Insurance
• Home Insurance
• Life Insurance
• Disability Insurance
• Health Insurance
• Long-Term Care Insurance

Integrated Shield Plan Riders

Integrated Shield Plans (IPs) are hospitalisation insurance plans that work to supplement the coverage from the national hospitalisation scheme MediShield Life. IPs cover most of your medical costs if you are hospitalised, such as inpatient and certain outpatient costs. They usually come with deductible (a lumpsum to be borne by you) and co-insurance (the sum that is shared between you and insurer) components.

In the past, IP policyholders could buy full riders to avoid paying both components. However, starting from policy renewals from April 2021, these full riders which previously offer cover to IP policyholders from the first dollar of the claim will be downgraded to co-pay riders that require a minimum 5% co-payment. Fortunately, most insurers have capped this at S$3,000 to ensure that it remains affordable for policyholders, on the condition that you seek treatment from their panel of doctors.

While there will be higher out-of-pocket-expenses for policyholders now compared to before, the advantage is that insurance premiums have been adjusted lower across the board. For most IPs with new co-pay riders, the deductible component no longer applies.

How Does IP Co-pay Rider Work?

• IP without Co-pay Rider

If you buy an IP without adding on a rider, you will need to fork out the deductible first and co-pay 10% of the bill, before your health insurance makes a payout. There is no cap on the co-payment that you have to pay, which means that you are still on the hook if you incur a hefty hospital bill, even if you own an IP.

Let’s assume David incurred a hospitalisation bill of S100,000. Without a co-pay rider for his IP, he would have to first pay an annual deductible of S$3,500 for staying in a Class A ward in a public hospital before incurring a 10% co-insurance [10 per cent x (S$100,000 – S$3,500) = S$9,650] on that balance. This adds up to S$13,150 (S$9,650 + S$3,500). Depending on the type of plan that David chooses and the ward that he is in, the deductible that he has to pay will be different.

• IP with Co-pay Rider:

With the co-pay rider that he purchased for his IP, there is a cap of S$3,000. Instead of paying S$13,150, David pays just S$3,000 for his medical bill.

• Life Insurance Riders

For life Insurance, there are several types of riders available for a single plan. The most common types of life insurance riders are total and permanent disability riders, critical illness riders and premium waiver riders.

• Total and Permanent Disability Riders

Many life insurance plans typically makes a pay out in the event of a terminal illness diagnosis or upon death. It is prudent to consider an optional Total and Permanent disability Rider (TPD), which offers the assurance that you will receive your sum assured if you end up with TPD. Some life insurance policies already cover TPD from the start without requiring a rider, which may be more cost-effective.

• Critical Illness Riders

Critical illness riders work similarly to TPD riders. They offer additional coverage by extending a pay out when you get a critical illness diagnosis. Conditions like heart attack, stroke and cancer are usually covered. For critical illness coverage, the Life Insurance Association recommends approximately 5 times your annual earnings, based on the likely recovery period of 5 years when diagnosed with a major illness.

Getting a life insurance policy with a critical illness rider can be a good idea if you want to cover all bases. Before you sign on, check the list of illnesses covered and exclusions. Do note that some insurers terminate the base policy once a claim is made on the rider. A plan that continues to give you life cover, even if it means a higher premium on the rider, may be more suited to your needs.

• Premium Waiver Riders

This rider waives off future premium payments by the insured under certain conditions such as the diagnosis of a covered critical illness terminal illness or death.
When that happens, your plan will continue to run but premiums payment ceases. You can also buy premium waiver riders if you are paying for someone else’s life insurance policy, such as your children. This can be useful for times where you want to ensure coverage for your loved ones even when you suffer a loss of income.

Do you need Insurance Riders?

It is a good idea to buy Insurance riders if you want additional coverage on top of your basic policy. In view of rising health costs, it will also be cost effective to purchase a health insurance rider and critical illness rider. Hospital bills for major ailments can be very expensive and costly. With health insurance riders, some of the costs can be defrayed.

On the other hand, riders can be more of a luxury rather than a necessity. Only take them up if you have the spare cash to do so.

As for TPD riders, it ensures one get an early payment if the insured becomes disabled. Thus, this will lighten the financial cost for the insured.

Overall, insurance riders can be a cost-effective option to increase coverage without taking up extra insurance policies. However, their coverage may be less comprehensive compared to a full policy. Do compare the differences and consider your budget when making a decision!

DBS has partnered with major insurers in Singapore to make health insurance easily accessible online for purchase. You can now independently learn, compare and buy a plan most suited to your own needs. Find out more on DBS Health Marketplace.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.