Policy Riders: A Guide to the Bells and Whistles of Individual Disability Insurance – Part 4

Provisions Appearing As Policy Terms or As Riders (2 of 2)

In this series of posts we are discussing policy riders, the add-ons to your basic disability insurance policy that provide additional terms or benefits in exchange for higher premiums. In part one, we walked through the basics of policy riders and evaluated the commonly-purchased COLA rider. In part two, we analyzed two benefit-based riders that enable you to increase your monthly benefits without the hassle of applying for additional coverage.

In the part three, we looked at a pair of provisions that may appear as policy terms or as riders, depending on the disability insurer.  Some of these provisions can have a significant effect on your rights and benefits in the event of a disability, and identifying where and how they may fit into your disability insurance policy is critical to ensuring you are fully protected.  In this fourth post, we’ll look at two more provisions that sometimes appear as policy terms and sometimes appear as riders, depending on the insurer.

Own Occupation

On this blog we have spent a significant amount of time writing the importance of purchasing an individual disability insurance policy that defines “Total Disability” in terms of your own occupation, rather than any occupation.  This is especially true for doctors, dentists, and other highly specialized professionals who have invested years of time and hundreds of thousands of dollars in their careers.

To determine if you have an own occupation policy, look under the “Definitions” section of your policy for the definition of “Total Disability”:

Total Disability or Totally Disabled means that, solely due to Injury or Sickness, You are not able to perform the material and substantial duties of Your Occupation.

Your Occupation means the regular occupation in which are engaged in at the time you become disabled.

This is a typical own occupation definition of Total Disability.  If your policy does not define total disability in terms of Your Occupation, Your Regular Occupation, Your Current Occupation, or similar language, it is unlikely that you have an own occupation policy.  If that is the case, you may nonetheless be able to purchase an own occupation rider.  An own occupation rider will likely come with a significant premium increase, but for most medical professionals the high cost is justified by the additional income security the provision provides.

Lifetime Benefits

Most modern-day disability insurance policies pay benefits until the policyholder reaches age 65, though in some unique cases a standard policy may pay lifetime benefits.  More often, however, a lifetime benefits provision must be purchased as a policy rider.  The provision usually includes language stipulating that the disabling condition must occur before a certain age (typically between 45 and 55) in order for the policyholder to be eligible for lifetime benefits at 100% of their monthly benefit.  If the condition occurs after the cutoff age, the policyholder will only be paid a percentage of their monthly disability benefits for the remainder of their lifetime.  For example, the provision may structured as follows:

Lifetime Benefit Percentage is determined based upon the following table:

If Your continuous                                                                 The Lifetime Benefit

Total Disability started:                                                          Percentage is:

Prior to Age 46                                                                              100%

At or after Age 50, but before Age 51                                            75%

At or after Age 55, but before Age 56                                             50%

At or after Age 60, but before Age 61                                             25%

At or after Age 64, but before Age 65                                               5%

At or after Age 65                                                                              0%

A lifetime benefit extension rider can be enormously advantageous if you become disabled prior to the cutoff age.  However, as you can see from the table, it can also have rapidly diminishing returns if you become disabled later in life, depending on your policy’s terms.

In the last post of this series on disability insurance policy riders, we’ll be taking a look at some of the more recent policy rider products disability insurance companies are offering to the next generation of medical and dental professionals, such as the student loan rider.

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