Optional benefits and riders are policy add-ons that enable you to customize an individual disability policy to fit your needs. Occasionally, some of these riders or optional benefits will be included as base coverage, but most of them often must be purchased separately and may substantially increase the cost of the policy. You may need to purchase some of the riders when you buy the policy; others may be added on to the contract after the policy is issued. The following section details some (but not all) of the optional benefits and riders that can be added on to a disability insurance policy.
Automatic Benefit Increase Rider
This rider (sometimes offered as part of the basic policy) stipulates that the monthly policy amount will be adjusted automatically every year to account for pay raises or increased income you may receive after you’ve purchased a disability policy. The rider provides annual increases for a certain term (often five years). During this time, you won’t have to provide any proof that your income has gone up. However, upon renewal of the rider, you may have to show evidence that your income has increased; otherwise, you won’t be able to renew the rider.
Cost-of-Living Rider
If you are afraid that inflation will eat away at your disability benefit, you can purchase a cost-of-living adjustment rider that increases your monthly benefits if inflation rises. If inflation is low, a minimum percentage (4 or 5 percent) often applies. Although some companies cap the increase amount, others let you choose your own maximum at the time you purchase the rider. The cost-of-living rider is very expensive but may pay off on a long-term policy. If you suffer a short-term disability, however, inflation is unlikely to matter.
Future Benefits Increase Rider
Also called an option to increase coverage or a guarantee of insurability rider, this gives you the option to buy more disability coverage if you need it later, without being turned down for medical problems. This is a useful rider if you are young and expect your income to rise significantly over the years.
Example(s): Heloise purchases a disability income insurance policy when she is 30 that includes a future benefits increase rider. At the time she buys the policy, she earns $2,000 per month, and her policy pays her a $1,200 per month benefit. By the time she is 35, however, she is earning $3,000 per month and wants to increase her benefits. She does so under the terms of her rider, which allows her to purchase an additional $400 of monthly benefits every three years.
Partial Disability Benefits Rider
Although the terms partial disability and residual disability are sometimes used interchangeably, partial disability is actually a simpler, short-term version of residual disability. Like a residual disability policy or rider, a partial disability benefits rider will pay you benefits in the event that you can perform some but not all of the duties of your occupation full-time or part-time. Unlike a residual disability policy or rider, however, a partial benefits rider doesn’t pay benefits based on the percentage of earnings you’ve lost. Instead, it simply states that you must first be totally disabled and pays you benefits equal to 50 percent of your total monthly disability benefit once you return to work. However, the benefits will be paid only for a specified period (usually three to six months).
Return-of-Premium Rider
The return-of-premium rider might appeal to you if, like most people, you don’t believe that you will actually become disabled but you are buying a disability policy just in case. The return of premium rider entitles you to get back the premium money you pay in the event you don’t need to use the policy benefits. Depending on the type of rider you choose, you will either get a percentage of the money back at certain ages or after a certain number of years, or you’ll get all of your money back at age 65 when the rider expires. This rider will substantially add to the cost of your premium.
Social Benefits Rider
This rider provides disability benefits in addition to your base monthly benefit. This benefit amount is payable to you as long as you are not receiving (or are eligible to receive) a social benefit (e.g., Social Security disability insurance). When you receive a social benefit, your social benefits rider may be reduced by the dollar amount you are receiving. This rider typically costs less than your base benefit because it takes some of the guesswork out of underwriting and protects the insurance company against some risk.
Example(s): Hillary purchased an $800 Social Security offset rider. She applied for Social Security disability benefits and began collecting $500 a month after the five-month waiting period elapsed. When she filed a claim for disability benefits with her insurance company, she began receiving a $300 per month disability benefit from her social benefits rider in addition to her base amount benefit. This amount was equal to the difference between her rider amount and what Social Security actually paid her.
Caution: There are several versions of Social Security income riders that pay benefits in various ways. Check your policy for specific terms.
If you have questions, contact the Experts at Henssler Financial: experts@henssler.com or 770-429-9166.
Disclosures
The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
