Accelerated sum insured
Also written Accelerated critical illness cover · Accelerated benefit
A critical-illness or disability rider that pays out of the same sum assured as the life cover, so a claim reduces the death benefit — cheaper than a rider that pays an amount over and above the life cover.
In plain language
A critical illness rider on a term plan can work in two different ways, and the difference decides both the price and what happens after a claim.
One way pays an extra, separate amount on top of the life cover if the insured is diagnosed with a listed critical illness. The other way pays out of the life cover itself — the critical illness claim is an early draw on the same sum assured, and the death cover left afterwards is reduced by that amount. This second design is called an accelerated sum insured.
Because the insurer is not promising two separate payouts, an accelerated rider costs less than one that pays independently of the death benefit.
How it works
The trigger is standard for this kind of rider: diagnosis of a listed critical illness, and survival for 30 days after diagnosis. On a valid claim, the insurer pays out of the policy's existing sum assured, and the life insurance cover is reduced by the amount paid. If the insured later dies during the remaining term, the nominee receives only what is left of the sum assured — not the full original amount.
The workbook makes a pricing point worth remembering: in most cases, the premium on a term insurance policy with an equal critical illness cover on an accelerated basis works out cheaper than a standalone critical illness policy bought separately from a general insurer — even though the accelerated rider is bundled with life cover the standalone policy does not provide at all.
A worked example
Illustrative figures, based on the workbook's benchmark premiums for a 30-year term plan.
Rohit, aged 30, buys a term plan with a sum assured of Rs 1 crore, and adds an accelerated critical illness rider for Rs 25 lakh — carved out of the same Rs 1 crore, not on top of it.
At age 42 he is diagnosed with a listed critical illness and survives the 30-day period. The insurer pays him Rs 25 lakh. His life cover for the rest of the term is now Rs 75 lakh, not Rs 1 crore.
If Rohit dies at 50, his family receives the remaining Rs 75 lakh — the Rs 25 lakh already paid out on the critical illness claim is gone for good. Had Rohit instead bought a rider that paid in addition to the death benefit, his family would still receive the full Rs 1 crore on death, but the extra protection would have cost him a noticeably higher premium every year from age 30.
Why NISM asks about it
Chapter 2 (Features of Life Insurance Products), section 2.2 on riders and section 2.7.1 on criteria to evaluate a life policy, both mention the accelerated sum insured basis for a critical illness rider. Expect a question contrasting an accelerated rider with an "additional sum insured" rider, and asking which is cheaper and why.
Common exam traps
- Accelerated means the same sum assured is split between the life cover and the critical illness claim — a claim reduces future death cover.
- An "additional sum insured" or independent rider pays over and above the death benefit and costs more.
- The accelerated rider is usually cheaper than a standalone critical illness policy, not just cheaper than the non-accelerated rider — a two-way comparison the workbook makes explicitly.
- The 30-day survival requirement applies to critical illness claims generally, and is not unique to the accelerated design.
Check yourself
1.A critical illness rider pays the pre-specified sum on:
- a)Diagnosis of a life-threatening illness alone
- b)Diagnosis of a life-threatening illness and survival for 30 days after such diagnosis
- c)Hospitalisation for more than seven days
- d)Death caused by a critical illness
Show the answer
Answer: (b) Diagnosis of a life-threatening illness and survival for 30 days after such diagnosis
The rider provides a pre-specified sum ON DIAGNOSIS OF A LIFE-THREATENING ILLNESS AND SURVIVAL FOR 30 DAYS AFTER SUCH DIAGNOSIS. Where the life insurance cover is reduced by the amount paid out under this rider, this is called the ACCELERATED SUM INSURED, which is cheaper than a rider that pays out independent of the death claim — and, ironically, a term policy with an equal accelerated critical illness cover is often cheaper than a standalone critical illness policy from a general insurance company.
2.How should the amount of critical illness cover required be calculated, according to the workbook?
- a)As a fixed multiple of the health insurance sum insured
- b)Like a life insurance policy, since it is an income replacement policy, and such a large sum is normally available only as a standalone policy or an accelerated sum insured rider on a life policy
- c)As the expected hospitalisation cost of the specified illnesses
- d)As one year of annual income
Show the answer
Answer: (b) Like a life insurance policy, since it is an income replacement policy, and such a large sum is normally available only as a standalone policy or an accelerated sum insured rider on a life policy
The workbook criticises the common view: critical illness policies are MOSTLY THOUGHT OF AS AN ADDITIONAL COVERAGE to receive a much smaller lump sum. THERE IS A LACK OF AWARENESS ABOUT THE IMPORTANCE OF CRITICAL ILLNESS POLICY AS AN INCOME REPLACEMENT POLICY. THE CALCULATION FOR AMOUNT OF CRITICAL ILLNESS COVERAGE REQUIRED HAS TO BE DONE LIKE A LIFE INSURANCE POLICY. NORMALLY SUCH A LARGE SUM WILL NOT BE AVAILABLE AS A RIDER TO A HEALTH INSURANCE POLICY, BUT ONLY AS A STAND-ALONE CRITICAL ILLNESS POLICY OR AS AN ACCELERATED SUM INSURED RIDER ON A LIFE INSURANCE POLICY.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- Critical illness insuranceA defined benefit policy that pays a lump sum when the insured is diagnosed with a specified disease such as cancer, heart attack or stroke and survives a minimum period — no payment on death.
- Personal accident insuranceA policy paying a defined sum where the insured sustains bodily injury solely and directly from an accident caused by external, violent and visible means — covering three grades of disablement.
- Surrender valueThe amount an insurer returns when a policyholder discontinues an investment-cum-insurance policy early — at least 30% of premiums paid under the workbook's rules, rising to 90% near maturity.
- Top up policyA health policy that pays hospitalisation expenses above a pre-agreed threshold (deductible) — applied to each claim separately, unlike a super top-up, which applies it to the year's total.
- Claim settlement ratioThe share of claims an insurer actually paid out of all the claims it received in a year, published by IRDAI — one yardstick for picking an insurer, though not the only one.
- Sum insuredThe amount specified in a non-life policy that represents the insurer's maximum liability for claims made during the policy period - the ceiling on what the policy can ever pay.
- Waiver of premium riderA life insurance rider, bought for an extra premium, that is triggered where a disability or a loss of income makes it difficult for the policyholder to pay the premium.