Disability policy riders are additional benefits that change your base policy language. Some policy riders are included at no extra cost, while others increase your premium. If you already own a policy and would like to make sure your riders are accomplishing your goals for your disability insurance policy, please contact us. Our consultations for this service are complimentary.
What is a Policy Rider?
A policy rider will often (not always) enhance the benefits of your disability insurance policy. It can change your disability definition, total benefit, ability to receive claims, and many other features of your policy. Some riders are “free”, meaning they don’t cost additional premium to add to your policy. These included riders may even be required on the basis of your occupation or product selection.
Other riders cost money and will increase your premium. Some riders might be desirable; whereas others may bloat your premiums for little in return. However, this is subjective, since a rider that is meaningless to one person may be substantial to another.
How Your Disability Insurance Policy Riders Impact Your Premium
Policy riders vary from carrier to carrier in both options and cost. For most riders, your policy benefits and premiums will increase as you add riders.
There are a few policy riders (like a mental/nervous limitation) that reduce your premiums, but also place a limitation on your benefits should you go on claim with a condition that fits the rider definition.
Policy Rider Examples
If you’re reading this article, you might already know benefit options vary widely from carrier to carrier. Even within a specific carrier’s product offerings, the differences between white, gray, and blue collar are substantial. For the purposes of this material, I will highlight the policy riders in plans that a high income, white collar profession would likely add-on or require of their policy.
True Own Occupation
A true own occupation definition of disability is often the most desired for a high-income professional. It states you will receive your disability insurance benefit amount if totally disabled (unable to do the substantial and regular duties of your profession), regardless of your work in another occupation.
A few carriers, such as Guardian and The Standard, include “true own occ” as part of their base benefits on their flagship product. That means it doesn’t cost you anything extra to have this feature added to your policy. Other companies, like Ohio National and Principal, can require a rider to upgrade your policy from an own occ-not otherwise engaged (you can’t do your job, and you’re not working anywhere else, even if you could) to a true own occupation.
Residual Disability
This rider is likely the most expensive when not included in your base policy and one of the most important riders to look for on your disability insurance policy. It typically states, if you have a sickness, illness, or injury that limits your time or duties and, because of that, you have a loss of earnings, it allows you to receive a portion of your benefits.
This is vital to your policy, since some disability claims do not begin with a total disability. Cancer treatments can be extraordinarily debilitating, however, for some weeks, the individual may feel fine. Should the insured have a residual disability rider (sometimes, called a partial disability rider…again, depending on the carrier) then the loss of time due to the treatment and subsequent sickness would allow for a claim to be made.
Several riders are worded uniquely, so know what you’re getting. They often have a change in qualification around the six month mark. To add to the confusion, some carriers offer a “basic” version and an “enhanced” version of the same rider. You might surmise the “enhanced” is more expensive.
An “enhanced” residual rider may pay benefits on any loss of earnings due to loss of time or duties, whereas a more basic rider may require a threshold percentage to be reached (e.g., 15%-20%) prior to being triggered. The basic rider might only pay up to a certain percentage of your base benefit (e.g., 50%), whereas an enhanced rider would make up for almost all your income loss and even pay 100% of your benefit for a substantial (e.g., 75%) income loss.
Cost Of Living Adjustments
The average disability claim lasts approximately 34.6 months, and even this relatively short while can devastate a family’s finances. Longer periods of
disability are not uncommon, and in those instances, having a base benefit that protects current earnings may not be enough.
Should you become disabled and have a cost of living adjustment rider, also known as a COLA rider, then your benefit amount will increase by a certain percentage each year. That percentage may be a fixed amount, such as 3%, or it may vary depending on the consumer price index-U (CPI-U) or another inflation-measuring benchmark.
Should you be disabled for an extended period, having the buying power of your disability insurance policy’s benefit amount continually increasing is an attractive feature.
Catastrophic Disability
A catastrophic disability rider will substantially increase your disability benefit amount should your disability meet certain conditions.
The definition of a catastrophic disability will vary from carrier to carrier, but for most, it will be an injury or sickness that causes severe cognitive impairment or the inability to perform 2 of 6 “ADLs” or activities for daily living (bathing, transferring, dressing, toileting, eating, and continence). You could also be considered catastrophically disabled if you are what’s called presumptively disabled. A presumptive disability is normally the loss of two limbs, sight, speech, or hearing.
Because a serious disability of this nature would have far-reaching implications beyond just a loss of income, the catastrophic disability rider is an important feature of most disability insurance policies.
Future Purchase Options
The riders normally come in two flavors, ones included for free and ones that cost additional premium.
The free ones are basic. Normally, for the first few years of your policy, your benefit amount will increase by a small percentage (e.g. 4%) automatically each year. You will also receive a new, higher, premium notice that coincides with your new benefit amount. This increase is optional and can be declined. Normally, if you decline the increase more than twice, the rider will no longer be available.
Future purchase option (FPO) policy riders you pay for can be much more substantial in benefit. Typically used with younger professionals or business owners, who expect income growth over the coming years, a future purchase option will allow the policy owner to increase their coverage up to a certain amount without proof of medical insurability. You will still have to clear financial underwriting, which will include verification of your higher income (done through tax returns, pay stubs, and bank deposits). This rider allows for someone who sees a substantial increase in income to increase their benefit amount drastically, sometimes, by more than double.
For any disability insurance policy owner who expects large increases in future earnings, an FPO rider can be essential.
Other Riders
Although the disability insurance carrier universe is relatively small, there is no shortage of riders and options either included or available for purchase on most disability insurance policies. To keep this post under 10,000 words, I will highlight a few offered by various carriers.
Mental/Nervous Riders:
These policy riders can either be included or added on. An included version of this rider will normally limit a mental or nervous disorder (think depression or anxiety) to only two years. This form of policy rider typically provides a discount to the premium, but may be required, depending on the occupation or carrier. Conversely, the paid (or sometimes included) version of this rider will switch the definition from 2 years to unlimited.
Non-cancelable Rider:
Some carriers include this feature in their base policy, whereas some do not. This rider normally comes with a guaranteed renewable provision. This combination means the carrier cannot cancel (if you make your premium payments), make changes to, or increase the cost of your disability insurance policy.
Waiver of Premium:
When on claim, the premiums are waived under this rider.
Unemployment:
With this rider, if you become unemployed, your benefits can be suspended and reinstated at a late date.
Student Loans:
These policy riders provide an additional monthly benefit amount to be utilized to pay off outstanding student loans.
Family Care Benefit:
This rider will pay a benefit for a limited time should the insured need to take time off work to care for an immediate family member.
Survivor Benefit:
If you die while on claim, a survivor benefit rider will pay a beneficiary a lump sum of 3-6 months of your benefit amount.
This list could go on and on. If you have a question on a specific policy rider, whether it is on an existing policy or one you’re considering, please contact us using the links at the bottom and top of this page or complete the quote form to the left with your question.
In Summary
There is a myriad of options for selecting disability policy riders. Some are critical to having a properly designed policy. Others might be nice to have but a cost vs. benefit analysis should be considered. If contemplating two carriers with very similar base benefits and costs, looking at the included or “free” options might tip the scales in one direction.
As I’ve said before, each individual is different, so making sure your disability insurance policy fits your objective is essential. Working with an unbiased, independent expert is the best way to make sure the policy you purchase has the proper riders for your situation. Please contact us today or fill out the quote form on the left for a complementary analysis.