Disability Insurance Riders-What Are They and Do I Need Them?
Disability insurance policies are made up of a base policy and various policy riders1. A rider is additional coverage that can be added to a policy. Additional riders are used to add supplemental coverage and make it part of a policy. There are some riders that can be essential for your situation and worth adding to the policy. There are other riders that would quite frankly be a waste of your premium dollars.
All disability carriers offer different riders. Some features are included in some policies but are riders on others- so it is important to look closely at the base policy and any and all riders considered. The riders allow you the flexibility to customize the policy to fit your specific situation and needs. Optional riders on an individual disability insurance (IDI) policy can help make sure that the coverage is for your specific occupation and keeps pace with inflation; guard against partial disabilities; and, even allow one the opportunity to purchase additional coverage without any further medical questions in the future.
The following five features are most commonly selected by our clients:
Non-cancellable: To avoid the possibility of losing your coverage just when you need it most, choose a policy that is non-cancellable and guaranteed renewable to age 65. With group or association group coverage, you run the risk of being dropped and left unprotected at a time in your life when, due to your age or to a change in your medical condition, it would be very difficult to qualify for coverage from another provider. Berkshire Life's ProVider Plus policy2 is non-cancellable and guaranteed renewable to age 65 or 67, so you are assured that premium rates and policy provisions will not be changed as long as premiums are paid on a timely basis.
True Own-occupation: As a highly skilled professional who has invested so much in education and training, you want to make sure you have true own-occupation coverage. You want to make sure that even if you can teach or do any other job, for example, you are still eligible for benefits. Group coverage is rarely true own-occupation coverage.
The Residual Benefit Rider: Most all of our clients chose the Residual Disability Benefit Rider. In some policies the residual is not a rider, but it is part of their policy. On the ProVider Plus policy, it is a rider and can be one of the most important features of any disability insurance policy. Without the residual disability benefit rider, you would only be eligible for benefits if you are totally disabled. The Provider Plus Residual rider also has a recovery provision built into it to help assist with your financial recovery following a disability. The residual disability benefit can even assist you in recovering from a total disability when you have returned to work full time, but still suffer a loss of income.
The Cost of Living Adjustment Rider - COLA:
The best way to guard against inflation is by adding a cost of living adjustment rider to your disability policy when you secure the coverage. A COLA rider is designed to annually adjust your monthly benefit when you are disabled to help keep pace with inflation. Most companies offer a fixed 3% COLA rider, and some offer a 6% maximum. Other carriers tie the annual increase to the Consumer Price Index for Urban Consumers (CPI- U), and allow it to fluctuate annually from 1%-6% based on the annual fluctuations of the CPI-U.
As a rule of thumb, the younger one is, the more important this feature. For example, if one is under age 45, it is almost imperative to have the Cost of Living Adjustment Rider. It is recommended for those between the ages of 45 and 55. It is not as necessary for those over age 55, as they are closer to retirement, and the effect of inflation is diminished by the lesser number of years to retirement.
Imagine if you are 40 years old and you owned an individual disability insurance policy with a $5,000 monthly benefit. If you became disabled, this amount may be sufficient to meet your needs at first, but as inflation factors in as the years go by, your benefit provides less and less. The following illustrates an example of two people. One added the cost of living rider, and one did not. They each started with a $5,000 monthly benefit and became disabled at age 40.
Monthly Benefit* at age 40 45 50 55 60 65
With 6% COLA $5,000 $6,991 $8,954 $11,983 $16,036 $21,459
Without COLA $5,000 $5,000 $5,000 $5,000 $5,000 $5,000
* Comparison of potential maximum monthly benefit $5,000, to Age 65 Benefit Period with 6% Cost of Living Adjustment Rider and one without. The 6% COLA calculations assumes 6% increase in the CPI-U each year throughout entire period of disability.
The Future Increase Option Rider: The Future Increase Option (FIO) rider offered on Berkshire Life's Provider Plus* policy offers you the opportunity to purchase additional disability insurance coverage to keep pace with rising income without having to provide further evidence of good health. You can do this even if you are disabled at the time of your option. Your additional coverage, if purchased while disabled would then apply to any new and separate disability. The FIO rider offers you the opportunity to purchase additional coverage each year on the policy's anniversary, up to and including age 55. You must demonstrate that your income has risen sufficiently enough to warrant the additional coverage, that you continue to be employed full time and you must disclose any other disability insurance you may have in force. Even if you have experienced a change in health, which many do, you will have the peace of mind in knowing it will not impact your ability to obtain additional disability insurance coverage in the future, provided your original disability contract contained an FIO rider.
All disability carriers offer different riders. Some features are included in some policies but are riders on others- so it is important to look closely at the base policy and any and all riders considered. The riders allow you the flexibility to customize the policy to fit your specific situation and needs. Optional riders on an individual disability insurance (IDI) policy can help make sure that the coverage is for your specific occupation and keeps pace with inflation; guard against partial disabilities; and, even allow one the opportunity to purchase additional coverage without any further medical questions in the future.
The following five features are most commonly selected by our clients:
Non-cancellable: To avoid the possibility of losing your coverage just when you need it most, choose a policy that is non-cancellable and guaranteed renewable to age 65. With group or association group coverage, you run the risk of being dropped and left unprotected at a time in your life when, due to your age or to a change in your medical condition, it would be very difficult to qualify for coverage from another provider. Berkshire Life's ProVider Plus policy2 is non-cancellable and guaranteed renewable to age 65 or 67, so you are assured that premium rates and policy provisions will not be changed as long as premiums are paid on a timely basis.
True Own-occupation: As a highly skilled professional who has invested so much in education and training, you want to make sure you have true own-occupation coverage. You want to make sure that even if you can teach or do any other job, for example, you are still eligible for benefits. Group coverage is rarely true own-occupation coverage.
The Residual Benefit Rider: Most all of our clients chose the Residual Disability Benefit Rider. In some policies the residual is not a rider, but it is part of their policy. On the ProVider Plus policy, it is a rider and can be one of the most important features of any disability insurance policy. Without the residual disability benefit rider, you would only be eligible for benefits if you are totally disabled. The Provider Plus Residual rider also has a recovery provision built into it to help assist with your financial recovery following a disability. The residual disability benefit can even assist you in recovering from a total disability when you have returned to work full time, but still suffer a loss of income.
The Cost of Living Adjustment Rider - COLA:
The best way to guard against inflation is by adding a cost of living adjustment rider to your disability policy when you secure the coverage. A COLA rider is designed to annually adjust your monthly benefit when you are disabled to help keep pace with inflation. Most companies offer a fixed 3% COLA rider, and some offer a 6% maximum. Other carriers tie the annual increase to the Consumer Price Index for Urban Consumers (CPI- U), and allow it to fluctuate annually from 1%-6% based on the annual fluctuations of the CPI-U.
As a rule of thumb, the younger one is, the more important this feature. For example, if one is under age 45, it is almost imperative to have the Cost of Living Adjustment Rider. It is recommended for those between the ages of 45 and 55. It is not as necessary for those over age 55, as they are closer to retirement, and the effect of inflation is diminished by the lesser number of years to retirement.
Imagine if you are 40 years old and you owned an individual disability insurance policy with a $5,000 monthly benefit. If you became disabled, this amount may be sufficient to meet your needs at first, but as inflation factors in as the years go by, your benefit provides less and less. The following illustrates an example of two people. One added the cost of living rider, and one did not. They each started with a $5,000 monthly benefit and became disabled at age 40.
Monthly Benefit* at age 40 45 50 55 60 65
With 6% COLA $5,000 $6,991 $8,954 $11,983 $16,036 $21,459
Without COLA $5,000 $5,000 $5,000 $5,000 $5,000 $5,000
* Comparison of potential maximum monthly benefit $5,000, to Age 65 Benefit Period with 6% Cost of Living Adjustment Rider and one without. The 6% COLA calculations assumes 6% increase in the CPI-U each year throughout entire period of disability.
The Future Increase Option Rider: The Future Increase Option (FIO) rider offered on Berkshire Life's Provider Plus* policy offers you the opportunity to purchase additional disability insurance coverage to keep pace with rising income without having to provide further evidence of good health. You can do this even if you are disabled at the time of your option. Your additional coverage, if purchased while disabled would then apply to any new and separate disability. The FIO rider offers you the opportunity to purchase additional coverage each year on the policy's anniversary, up to and including age 55. You must demonstrate that your income has risen sufficiently enough to warrant the additional coverage, that you continue to be employed full time and you must disclose any other disability insurance you may have in force. Even if you have experienced a change in health, which many do, you will have the peace of mind in knowing it will not impact your ability to obtain additional disability insurance coverage in the future, provided your original disability contract contained an FIO rider.