If you’ve spoken with an insurance agent about disability insurance, the topic of “riders” has probably come up. A rider is essentially an “add-on” to an insurance policy. The rider provides additional coverage not included in the basic disability insurance policy. Of course these riders aren’t free. There’s an increase in monthly premium associated with each rider.
Unfortunately, as a means of increasing their commission, some insurance agents will try to sell you riders you don’t need. To help you avoid buying an unnecessary rider, let’s explore some of the most common disability insurance riders that we tend to recommend considering.
Important Disability Insurance Riders
Residual Disability Rider
A Residual Disability Rider allows you to go on partial claim while still working. This rider is extremely important because most claims start and/or end as a partial disability claim. Sometimes the residual disability rider is built into the disability insurance policy, but always make sure it is there! In many cases this is the most important rider to have on a disability insurance policy.
Own-Occupation Rider
An Own-Occupation Rider defines “disability” in terms most favorable to the insured. With an own-occ rider, you’re considered disabled if you have a medical condition that does not allow you to work in your current occupation. This means you could potentially become disabled from your job – take on work in a new occupation – and still collect benefits. This type of coverage is most important for highly specialized occupations, such as surgeons. Here is an example of why a surgeon might want the own-occ rider: A surgeon develops severe arthritis and is suddenly disabled from his high-paying job. Fortunately, his disability insurance policy pays him so his monthly income doesn’t stop. Even if he chooses to become a college professor eventually, those disability insurance benefits continue as long as he is unable to return to work as a surgeon (his “own-occ”).
Non-Cancelable / Guaranteed Renewable Rider
A Guaranteed Renewable Rider is a guarantee that you will be offered the same coverage each year. It is often coupled with a Non-Cancelable Rider, which means they cannot raise the price each year. Sometimes the non-cancelable and guaranteed renewable features are included in the base disability insurance policy as opposed to being an optional rider. Having these riders makes the policy a more permanent contract with the insurance company and therefore stronger. Make sure to consult with your agent and and ask about non-cancelable .
Cost of Living Adjustment Rider
You’ll see other insurance agencies push this rider hard, but we do not usually recommend a Cost of Living Adjustment Rider. There are, however, some situations where it makes sense, as we’ll explain below. For the most part, people over-estimate how much a cost of living adjustment rider (COLA) is needed. This rider can be very expensive and it only increases your benefits by 3% or 6% annually after you have been on claim for a year. Our advice is usually to not buy the COLA rider, but instead save the premium and spend it on increasing your policy each year. That said, the only time we tend to recommend considering a COLA rider is if our client is a young person in their twenties or thirties and they’re interested in inflation protection in the event of a long term claim.
Catastrophic Disability Benefit Rider
A Catastrophic Disability Benefit Rider creates an additional monthly benefit, beyond your base monthly disability benefit, that pays out if you are catastrophicall
- loss of use of two limbs, or
- loss of sight, or
- loss of hearing, or
- loss of cognitive ability, or
- loss of two daily living activities (ADLs), such as eating, bathing, dressing, etc.
Future Purchase Option Rider
A Future Purchase Option Rider allows you to increase your policy in the future without any medical underwriting. If you expect your income to increase over time, then it is smart to maximize your future purchase options to keep in line with your increasing income. The lack of any medical underwriting is a nice benefit. It’ll allow you to make these increases in coverage without having to prove you are in good health.
Free, No-Obligation Disability Insurance Quote
Ultimately each insurance carrier handles riders differently and the above examples are just general guidelines. In some instances, aspects of the riders are actually included in the base policy. This highlights the importance of not only reading your policy, but also having a qualified expert in your corner to explain what’s included in each insurance provider’s policy.
If you’re interested in learning more about disability insurance riders, please don’t hesitate to contact us.
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