Get to know your riders: A guide to maximizing the efficiency of your disability income policy.

Contributed by D. Scott Fehrs, ChFC Chief Executive Officer, Treloar & Heisel, Inc. CA Ins. Lic. #OD07615 AR Ins. Lic. #0811108

 

If you’re in the market for disability income insurance, it’s time to get familiar with an important component of the policy: the “rider.” Consider the rider an enhancement to your policy that provides you with additional coverage under specific circumstances. Riders are available as a supplement to the policy at an additional cost.

 

Let’s go over the top riders you could run into…

 

The Own Occupation rider.

The typical definition on a disability contract reads: “The occurrence of a condition caused by a sickness or injury, in which the insured cannot perform the main duties of his/her occupation and is not working at any other occupation. The insured must be under a doctor’s care.” This is known in the industry as a “Modified Own Occupation” definition.

 

The “Own Occupation” rider eliminates the phrase “and is not working at any other occupation.” It allows someone to work in another occupation and still receive full benefits if they are unable to work in their prior occupation. Most companies have their Own Occupation rider as an optional add-on to your contract and it is important to understand the various definitions and how they could affect your claim.

 

The Partial Disability rider.

One of the more important riders is the Partial Disability rider, also known as Residual Disability rider. This rider ensures that you get coverage in the event that you’re still able to work, but due to disability you can’t work at full capacity.

 

There are different variations of partial disability. Generally, it requires a minimum 15% loss of income to qualify for benefits. Some contracts may require a loss of time or duties or income to receive partial benefits. An example of partial disability situation might be a person diagnosed with cancer. When they are in chemotherapy they can only work a few days a week. Going back and forth to treatment may reduce your income, but you’re still practicing.

 

Many of the claims we see will have a partial component. Some will begin as a partial disability and lead to a total disability. Many total disabilities can regress to a partial disability. This rider should be included on every contract.

 

 

 

The Future Insurability Option rider.

Future insurability is important because it guarantees your ability to purchase coverage in the future regardless of your health. You do need to financially qualify, but thankfully you do not have to provide medical information to increase coverage. The idea is to obtain coverage when you’re young and as healthy as possible. Later, as you mature in your career and your income increases, your insurance coverage can increase accordingly. This rider is extremely important for people whose income is going to increase in the future. We typically find this to be the case for dental and medical residents.

 

The Cost of Living rider.

The Cost of Living rider essentially protects your benefits from being eroded by inflation. There are many variations of this rider. Some companies base this rider on the Consumer Price Index (CPI), others base it on a flat rate of 3% a year. Regardless, it’s good coverage to have.

 

Most companies offer the choice of a rider with either simple or compound inflation protection.

 

If you are young when you are buying your policy you will want to seriously consider a rider with a compound inflation feature. Let’s say you’re disabled at age 40 and have $5,000 a month of disability income coverage with a 3% compound inflation rider. Your benefits could increase to over $10,000 a month when you’re 65 years old. If a cost of living rider with a simple inflation feature was selected, your benefits would increase to about $8750/month when you’re 65 years old.

 

The Catastrophic Disability rider.

Just like the name says, this rider entitles you to additional benefits in the event of a catastrophic disability. It’s a very cost effective way to get additional coverage, and it covers you when you’re disabled to the point of needing to move to a nursing home or to receive extensive care.

 

The bottom line is: disability insurance is one of the most important coverages you own, you need to read the fine print and understand your policy. Disability income insurance policies have exclusions and limitations. It is important to speak with a specialist to help determine what makes sense for you.