Disability Insurance Policy: Which Optional Riders Do You Really Need?

Buying a disability insurance policy is a good start, but you shouldn't stop there. Consider the optional riders that will give you more coverage than a typical policy. If you've already got a policy, or if you plan to buy one shortly, there are three riders you really need to think about purchasing: residual disability rider, future increase option and cost of living adjustment.

Residual Disability Rider

A disability insurance policy will pay your benefits based on your income at the time you apply for your policy. That's fine if you return back to work and your income never changes. However, if you end up working part-time or your income level drops, you'll need money to make up the difference. A residual disability rider is one option to make up the difference. It will pay you the difference between the income you used to make, and your new level of income. It doesn't pay out benefits if you end up making more money than before. For that, you'll need a future increase option.

Future Increase Option

A better name for this rider should be "Future Wage Increase Option." It's designed to increase your monthly benefits as your income level increases during the term of the policy. When you buy a disability insurance policy today, your benefits will be based on your current income. Five years from now if you're making more money, you'll want your monthly benefits to match your new income level. The only way to secure higher benefits at a later date based on an increase in income is with a future increase option rider. You're guaranteed to get higher benefits based on a higher income, without the need to reapply for a new policy.  It's also important to note that a future change in your health doesn't affect your ability to receive more benefits at a later date, if you buy a future increase option rider now.

Cost of Living Adjustment

Your living expenses today will not be the same in the future. It's most likely to go up. Food, electricity rates and gas fuel prices are just a few of your expenses that may go up. A cost of living adjustment (COLA) rider, protects you against increased living expenses, so that you get the insurance payments you need to maintain your standard the living. The only problem with a COLA rider is that you can only receive payments if you have an open claim for at least 12 months. If your disability claim lasts only a few months, because you recover, you won’t be able to take advantage of the COLA rider you purchased. Even if you do qualify, the cost of living adjustments are calculated only once every 12 months. A COLA rider makes sense for long-term disability planning, but don’t rely on it for short-term benefits.

You really do need these three riders if you want full protection in your disability insurance policy. Compare the costs of the riders the same way you would the standard policy.


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