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.
In prior posts, we’ve talked before about how an individual disability policy with a true “own occupation” provision is ideal. Under this type of provision, you are “totally disabled” if you are no longer able to perform the material and substantial duties of your occupation (for example, you can no longer perform dentistry), and you can still work in a different field and receive your full benefits (if you are able and choose to do so).
Most doctors looking for a disability policy know that it’s important to get an “own occupation” policy, but may not realize that there are several, less-favorable provisions that are also styled as “own occupation” provisions. These provisions contain the phrase “own occupation,” but also contain language that can dramatically impact a doctor’s ability to collect. For example, a policy might provide benefits if you are no longer able to work in your occupation, but only if you are not working in any other occupation. And some newer disability policies actually require you to work in another occupation in order to collect benefits.
Another type of restriction we’ve been seeing recently is a “transitional own occupation” or “transitional your occupation” policy. As we stated above, under the true “own-occupation” policies prevalent in the 80’s and 90’s, you can work in another profession and still collect full benefits, regardless of whether you make less, the same, or more than when you were practicing. With “transitional own occupation policies” or “transitional your occupation policies,” you can work in another profession, but your benefits are reduced if your total income (from your benefits, employment, and other insurance benefits) ever exceeds what you made immediately prior to your disability. So, with these types of policies, your earning potential is essentially capped at what you were making before you became disabled (if you want to keep receiving benefits under your policy).
Transitional own occupation policies may seem attractive because they may have lower premiums, but it is important to know that they are not the same as true “own occupation” policies, and they can result in a reduced benefit payment and/or limit your options if a lucrative employment opportunity should ever arise.
While many policies contain the phrase “own-occupation,” including “transitional own occupation” provisions, they often aren’t true own-occupation policies and you shouldn’t rely on an insurance agent to disclose this information. Oftentimes, your agent may not even realize all of the ramifications of the language and definitions in the policy that he/she is selling to you. Additionally, most of the newer disability policies now contain language saying that you cannot rely on an agent’s statements and/or that agents cannot change the terms of a policy. Consequently, you should always read a policy from start to finish and make sure you have a clear understanding of what you are buying, before purchasing a disability policy.