Policy Riders: A Guide to the Bells and Whistles of Individual Disability Insurance – Part 2

Benefit Increase Riders

In the first post of this series, we introduced you to disability policy riders and discussed a common rider designed to help protect your benefits from a fluctuating economy.  Policy riders can be useful for protecting your growing income as well, and we continue this with an evaluation of two riders intended to ensure that your monthly benefits remain in alignment with your current income and lifestyle.

The vast majority of doctors and dentists will experience significant increases in income as their careers develop.  If you are a dentist who purchased a disability policy right after graduating from dental school, it is likely that after ten or twenty years there will be a significant difference between your current monthly income and your monthly benefits under your policy.

If debilitating carpal tunnel syndrome forces you to stop practicing dentistry, the basic terms of your policy will not cover the gap between your monthly benefits and your current income.  The automatic benefit increase rider and the future increase option rider are designed to fill that gap in different ways.  However, both are intended to ensure that in the event of a disability, your benefits will be sufficient to cover the monthly expenses associated with your current lifestyle.

Automatic Benefit Increase Rider

The automatic benefit increase rider adjusts your monthly benefit on an annual basis to account for anticipated increases in income after you purchase your policy.  The annual increases are typically for a term of five years, after which you will generally be required to provide evidence of increased income in order to renew the rider.  If you renew the rider, it often includes a corresponding premium increase as well.  A typical automatic benefit increase schedule looks like this:

Increase Date Monthly Benefit Increase Annual Premium Increase
December 12, 2003    $500.00   $74.16
December 12, 2004    $500.00   $75.82
December 12, 2005    $500.00   $77.52
December 12, 2006    $500.00   $79.18
December 12, 2007    $500.00   $80.88
Total Increase $2,500.00 $387.56

An automatic benefit increase rider can help ensure that your monthly benefits adjust to compensate for increases in income throughout your career.  If you are purchasing a disability insurance policy and you are concerned with maintaining your lifestyle in the event of a disability, you may consider adding an automatic benefit increase rider to your policy.

Future Increase Option Rider

This policy rider guarantees you the right to purchase additional coverage at predetermined dates in the future without going back through the long and tedious process of reapplying for a policy.  Additional coverage purchases are typically limited to half the original benefit amount, and most insurers will not let you purchase this rider after age 45.  The increase in your premiums will often be a function of the amount of additional coverage purchased and your age at the time of the purchase.  This future income option rider was taken from a standard Unum policy:

You may apply for up to one Unit of Increase as of any Option Date. You may apply for part of a Unit of Increase as of any Option Date.

If all or part of a Unit of Increase is not used as of an Option Date, You may carry it over and apply for it on the next Option Date. But You cannot carry it over beyond that Option Date.

On the first Option Date, You may also apply for up to one additional Unit of Increase if You are not disabled. But You must also exercise all of Your current Unit of Increase.  This additional Unit of Increase cannot be carried over.

In no event may You exercise more than two Units of Increase as of any Option Date.  To use all or part of a carried-over Unit of Increase You must also exercise all of Your current Unit of Increase. The total number of Units of Increase exercised can never exceed the maximum number of Units of Increase shown on the policy schedule.

If You qualify, We will increase Your Policy Benefit by the amount for which You apply.

Like the automatic benefit increase rider, this option helps ensure that your monthly benefits are proportionate with your current income.  As such, if you elect to purchase additional coverage you may be required to show that your current level of income warrants additional coverage.

The future increase option is one of the most common and most popular policy riders, and it is cheaper than the automatic benefit increase rider because all you’re paying for is the right to purchase additional coverage.  Keep in mind, however, that the value of that right is the guarantee of your ability to increase your coverage regardless of subsequent changes in your disability risk factors.

Before you purchase an individual disability insurance policy, take the time to evaluate your financial goals and look carefully at the benefits provided by the basic terms of the policy you are considering.  If the policy basic policy benefits do not cover your needs, you may consider adding one of these riders to ensure your investment in your career is fully protected.  In our next post in this series, we will discuss provisions that may appear either in the basic terms of your policy or as a policy rider and how to identify them.


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