What is the Risk Cover Policy and Meaning? – All You Need to Know

A risk cover policy is financial protection offered by an insurance company to the insurance policyholder against sudden major life events like death, disability, or critical illness. Let us unfold more about this cover in this post.

When you buy a life insurance policy, you agree to pay a premium to the insurance provider in exchange for the protection or risk cover offered by the company. So, if the policyholder meets with an unfortunate event like death, the beneficiary/nominee receives a payout. However, the payout benefits the family only when the risk cover is adequate to meet their needs.

So, what is the risk cover policy?

A risk insurance policy is an insurance plan with a long tenure that allows monetary assistance against unfortunate events that occur in life, such as disability due to accidents, critical illness, and death. Until you face any sudden jolt in life in the form of an unfortunate event, you cannot understand the real value of a life risk cover. When misfortune strikes, insured people can sail through well due to the financial safety net, while those who are not covered face huge burdens during such terrible times.

How does the risk cover policy work?

As a policyholder, you can use the risk cover policy to cover your life or that of your dependent family members. This cover can also be used to protect your business or any other interest financially. Under this cover, your insurer will pay a pre-fixed sum assured depending on the individual’s risk profile determined at the time of buying the policy.

Here are some of the key personal risks that are mainly addressed by long-term risk cover insurance:    

1. Cover disability due to illness or accident:

In case of any disablement of the policyholder due to illness or accident, the risk cover policy compensates for the loss of income caused by the disability

2. Cover against critical illness:

If the insured is diagnosed with a critical disease that is covered under the policy, such as heart attack, cancer, pressure stroke, Alzeihmer’s, Parkinson’s, etc., the insurance provider will offer compensation to take care of the treatment costs and other financial needs of the policyholder and their family

3. Cover in the event of retrenchment:

If a policyholder gets retrenched in their employment, the risk cover policy offers financial security to allow you time to search for new avenues of income

4. Cover against death:

In the event of death of the policyholder, the family receives monetary benefits to take care of their needs

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Why do you need a risk cover policy?

Risk and insurance covers are chosen to ensure that the family members/dependents of policyholders do not suffer from any monetary crisis in the event of the policyholder’s unfortunate demise.

Life is unpredictable, and no one knows when and how calamity unfurls. Hence, staying prepared under a risk cover policy is essential. This way, you can remain covered against critical illness, accidents, disability or even death.

Some risk cover policies even offer retrenchment cover wherein the insurer pays the payout for a particular period fixed earlier, such as 6 months or so, for the person to look for better options for earning. You should consider the fact that the expenses of a family never cease to exist, irrespective of the income earned. The family’s daily needs, children’s education, medical requirements, etc., are always there. So, if the head earning member cannot work due to disability or a critical illness, there should be a monetary backup until the dependents or your kids are grown enough to support you.

8 Things to consider while choosing the right risk cover

Life insurance is an important investment. However, there are some considerations to take note of while choosing the sum insured or risk cover of life insurance policies:

1. Yearly income:

The payout offered by your life insurance policy in case of your sudden demise during the policy tenure works as the replacement of your annual income for the beneficiary. Thus, it should equal or exceed your yearly salary/income. Further, considering inflation, it is better to choose a risk cover that is at least 10 times your current income

2. Monthly expenses:

The premium you pay is decided as per the sum assured of your life insurance policy. The higher the sum assured, the greater the premium charged. Hence, it is essential to check your expenses so that you can fix a premium that is affordable and can be managed together with your other expenses

3. Inflation rate:

It is necessary to consider the inflation rate, which led to a constant rise in the cost of living every year

4. Debts/obligations:

This is another vital aspect to consider. If you have loans or debts that need to be paid, you should consider it while choosing the risk cover. This way, your family will not be burdened with paying the debts from the payout amount

5. Policy tenure:

Choose a policy tenure that is long enough to cover you for the duration you want or to meet your coverage needs. You can even go for a whole life insurance plan to get coverage for the entire life

6. Additional riders:

Several insurance providers allow rider facilities with life insurance policies to customize their plans and enhance their requirements. So, look for life insurance plans offering significant added riders to suit your needs

7. Age of insured:

Most insurance companies offer fixed age limits for policyholders. So, you can renew a policy till you meet that age limit. Hence, it is important to check the age of entry and maturity of the policy while buying a policy

8. Premium amount:

A policy’s premium is fixed depending on several factors, such as the age of the insured, income, policy term, sum insured/risk cover, riders, and so on. To get the best premium rate, you should check different policies by different insurers and select the one that is cost-effective and worthy

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