In prior posts we’ve talked about riders and how they can modify the terms of a disability policy. In this post, we will be looking at a rider we sometimes see in individual disability policies called a Social Insurance Substitute (SIS) rider.
An SIS rider is an optional rider that provides a monthly benefit that works a little differently than a standard base benefit. Generally speaking, SIS benefits can be reduced if you are eligible for and receiving social insurance benefits (e.g. Social Security retirement or disability benefits, workers’ compensation benefits, etc.).
SIS riders can operate differently, depending on the terms of your policy. In some instances, the benefit paid by the insurer will be reduced by the amount received from social insurance (usually up to a certain amount). In other policies, a certain percentage is subtracted from the benefits based on how many different forms of social insurance you are receiving (e.g. if you are receiving Social Security benefits, you might only receive two-thirds of your monthly benefit amount, and your monthly benefits might be further reduced if you started receiving benefits from a second source, like worker’s compensation).
The appeal of the SIS rider is that including it in a policy will typically result in a lower premium. The logic behind this is that the insurance company shares the risk of payment with the government. The primary downside to an SIS rider is the fact that your benefits will be reduced in some fashion if you obtain social insurance benefits.
In addition, policies with an SIS rider can also place additional requirements on policyholders by:
- Requiring policyholders to apply for social insurance benefits;
- Requiring policy holders to reimburse them if a lump sum payment is received from social insurance(s); and
- Requiring policyholders to go through the entire appeals process following any social insurance denials and/or re-apply for social insurance benefits periodically.
When choosing a policy, it is important to weigh what you can afford in premiums now with potential future benefits. If you can afford a higher premium, it is often in your best interest to choose a policy without an SIS rider and with a higher base benefit. As we have discussed previously, there are also certain riders that you can purchase that will automatically increase your monthly benefit (and premiums) by a certain amount each year and/or allow you to apply to increase your monthly benefit in the future, without undergoing additional medical underwriting. Whether you are shopping for a policy, or evaluating your existing policy, you should always keep in mind that the cost of the premium is not the only consideration. There are other factors in play that you must consider when purchasing a policy, and the type of insurance that you purchase can have a significant impact upon your financial position if you should become disabled.