Life insurance companies and agents are looking at life beyond strict regulatory guidelines. Lending a helping hand are 'riders', that is, the add-ons with the base policy.

Since last September, when the Insurance Regulatory and Development Authority (Irda) capped distribution costs of unit-linked insurance plans (Ulips), the number of policies with riders being sold had risen from 5 per cent of the total to 20 per cent, said insurers.

Mayank Bathwal, chief financial officer & head (institutional sales), Birla Sun Life Insurance, said the company saw close to 36 per cent increase in demand for policies with riders in the September-March period as compared to the previous year.

The number continues to rise. He said customisation and flexibility had become the focus.

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Riders are an alternative source of income. So both insurers and agents are happy pushing these.

After Irda capped the commission to agents for selling Ulips, most of them get 5-10 per cent of the first year's premium instead of the earlier 25-30 per cent. By adding riders, they can raise their income significantly.

They earn 22-25 per cent on riders, say industry players.

A number of riders can be purchased. These include surgical care, hospital care, waiver of premium care, critical illness, accident benefit, permanent disability benefit and guardian benefit.

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The cost of riders can range from 2-20 per cent of the policy premium. Irda has said the total premium for riders cannot be more than 30 per cent of the base policy premium.

"While riders were always there, they were not being sold aggressively by agents before the Irda guidelines on Ulips came into force," said Rajeev Kumar, vice-president, product & pricing, Bharti Axa Life Insurance.

Kumar says customer profiling shows that policyholders are more likely to continue a policy that has riders.

For some life insurance companies, the sale of riders has increased significantly. For instance, Kotak Life sold 70,000 riders in 2010-11 vis a vis 21,000 in 2009-10.

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Riders offer customers extra benefits with the base plan. Taking a rider can increase benefits at a low cost.

A 30-year male buying an endowment plan for 30 years, for a sum assured of Rs 500,000, can buy a term benefit or a life guardian benefit rider for 18 per cent and 6 per cent policy premium, respectively.

This gives an additional Rs 500,000 cover in case of disability due to accident. In case of death, the premium will be waived.

Last September, Irda capped commissions and increased the lock-in period of Ulips from three to five years.

It capped the sum assured at 10 times the premium for pension products. This resulted in a sharp drop in sales of Ulips, which accounted for more than 80 per cent sales of life insurance companies.