Disability insurance has many variables. We spoke recently about the basics of Disability Insurance. Today we’ll cover some of the most popular Riders that people choose to make their policy really give them the benefits that they want their policy to have. Of course, each extra benefit has a cost, so you must craft the plan that is right for you. Let’s get right to the most desirable Disability Insurance Riders…
Own Occupation Rider vs. Any Occupation Coverage – Having an “Own Occupation” Rider (or type of policy) is important if you want to be assured that the company won’t expect you to go back to a different type of work after you’ve been disabled for a while. Many companies offer coverage that allows you to miss work if you are unable to perform the duties of your own occupation for a short time (perhaps two years), but after this they will expect you to get work where you can get it, at which point your coverage would stop. Again, your company might have language that says it be “reasonable” for your education. It’s difficult to know ahead of time what type of disability we might be talking about and how that would apply, but as you think about your own profession, you might be able to think about work which you could do if you weren’t able to do your current job. This is the work that you would need to pursue if you did not have an “Own Occupation” policy.
Guaranteed Insurance Additions Rider – This Rider gives you the ability to add to your disability insurance in the future as your income increases even though you might have had a change in your health that would otherwise deny your increasing your coverage. For example, let’s say you had arthritis that was debilitating and you knew that at some point, you would be unable to work because of your deteriorating condition. But you were still working now and you were making $20,000 more per year than you were when you first took out your disability insurance policy. With the Guaranteed Insurance Additions Rider, you would automatically be able to increase your coverage as stated in the Rider without having to again qualify by insurability.
Social Security Integration Rider – This is a Rider that can actually decrease the cost of your policy. Social Security has a Disability Insurance component. The problem is that in most cases of disability, it does not pay a benefit. Therefore, it can’t be counted on for your coverage. However, if your disability is serious enough and of the right kind, Social Security will pay you. If this is the case, and you have this Social Security Integration Rider attached to your policy, then your policy will not pay out the monthly benefit that social security is paying out. However, if Social Security does not pay you a Disability Benefit, than your policy will pay you the full face amount.
Basically, your policy is guaranteeing you the full monthly benefit of the policy while charging you less for the coverage because there is less chance the company will pay out (in the case that Social Security is paying). This can be a good way to reduce premiums. However, some clients look at the savings and decide that they are too small and would rather keep both the insurance company and Social Security on the hook for such an occasion.
Cost of Living Adjustment Rider (COLA) – This is probably the most important Rider, and also the most expensive. Imagine that you were fully disabled for life at a young age. It would be an adjustment, but eventually you would get used to this new life. However, as inflation began to deteriorate the value of the Dollar, you would have a harder and harder time living on this income. The COLA Rider helps assuage this problem. It says that your benefits will rise as CPI rises. However, it is usually capped around 3 or 5%, so if inflation is more severe, this policy won’t keep up. Still, it will make it all the more important that you are getting as much as possible in your disabled condition.
Residual Disability Benefit Rider – The Residual Disability Benefit Rider allows you to go back to work part time and still receive benefits. Without this Rider, if you were able to go back part time, your coverage would stop. But with this Rider, something different is possible. Imagine that you were hurt in a way that you could no longer work 40-60 hour weeks, but you were able to work 20 hours per week and receive half the pay that you were earning before. If you had this Rider, the company would reduce its benefit to you by half (which is much better than stopping it completely) and you would now be earning half your former salary. In other words, you would be making more money than you were on disability insurance alone and able to enjoy the amount of work which you could handle. It’s a Win-Win for everyone.
Each person’s situation is different, so you will have to look at your own current situation to see which policy and riders are right for you.
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