Disability Insurance Articles
What are the Most Popular Riders to Include on an Individual Disability Insurance Policy?
by Bill Olmsted
E-Mail Bill Olmsted
Guardian Disability Insurance Brokerage has been focusing on the sale of individual disability insurance for over a decade. In that time, we’ve been able to help tens of thousands of clients protect their income. One question that comes up frequently when advising a client on how to design their coverage is – What optional riders should I purchase?
The Residual Disability Benefit Rider
The above data was compiled from actual sales of individual disability insurance policies to clients from the past decade, and accounts for over 31,000 policies sold during that time. As you can see, almost all of our clients chose the Residual Disability Benefit Rider. In our opinion, this is one of the most important features of any disability insurance policy. Without the residual disability benefit rider, you would only be eligible for benefits if you are totally disabled. By adding the residual disability benefit rider, your policy can protect you from an illness or injury that doesn’t cause a total disability but does limit your ability to work, which results in decreased income or it can even assist you in recovering from a total disability when you have returned to work full time, but still suffer a loss of income.
The Cost of Living Adjustment Rider - COLA
Another popular rider is the cost of living adjustment rider (COLA). In its various forms, it is included in just about 60% of all policies sold by our firm. The cost of living adjustment rider adjusts your policy’s monthly benefit annually, whether you’re totally or residually disabled, and includes a minimum benefit adjustment of 3%, calculated on a compounded basis.. This helps people who have a long term disability from having a decline of purchasing power over time due to inflation. Guardian offers three versions of this rider, giving clients a choice as to how they want to protect against the rising cost of living. The most popular COLA rider is the 3% Compound option which starts increasing benefits, after 12 months of total disability, each year by 3%. The 4 year delayed COLA rider is a less expensive option, as it doesn’t begin increasing the monthly benefit by 3% annually until after 4 years of disability. Finally, the 6% Maximum COLA is the most expensive option, but also provides the opportunity for the highest increase possible, allowing for a 6% increase based on the changes in the Consumer Price Index for Urban Consumers (CPI-U).
The Future Increase Option Rider
The Future Increase Option (FIO) rider^ is the third most popular option clients chose on their disability policies. This rider allows a client the opportunity to purchase additional coverage each year on the policy’s anniversary, up to and including age 55, with no medical insurability requirement. For example, a client who purchases $5000 of monthly benefit today with $5000 of FIO, has guaranteed their potential to exercise the increase option for a total of $10,000 per month of coverage regardless of changes in health. They have to document an income that qualifies them for this increased benefit, but they no longer have to worry about changes in health preventing them from increasing their disability protection.
Buying an IDI policy is an important aspect of financial planning. It’s important to not only get the right amount of coverage, but also to get the right optional riders that add value to the policy, and that meet your needs today and tomorrow.
The views and opinions expressed herein are that of the author and do not represent the views and opinions of The Guardian Life Insurance Company of America, or its subsidiaries or affiliates thereof.
*William Olmsted, Registered Representative of Park Avenue Securities, LLC (PAS), 1355 Piccard Drive, Suite 380, Rockville, MD 20850. Securities products and services are offered through PAS, 240-683-1400. Field Representative, The Guardian Life Insurance Company of America (Guardian) New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. PAS is a member of FINRA, SIPC.
Guardian Disability Insurance Brokerage is the brokerage arm of Financial Balance Group LLC. Financial Balance Group LLC is a general agency of The Guardian Life Insurance Company of America, NY, NY.
* Optional riders are available for an additional premium.
** This benefit is not necessarily protection against increases in the cost of living.
*** Retirement Protection Plus is not a pension plan or a substitute for one.