The Automatic Benefit Enhancement Rider
by Gary Fegan
This convenient, no-cost rider helps keep your disability benefit aligned with normal, annual income increases you might experience when healthy. It’s applied automatically at the time of underwriting to eligible policies and provides an annual 4% benefit increase each year for six years, with no proof of income required. Each increase will include an additional premium based on your then-current age. Having a disability insurance policy to protect your earnings ability is crucial to your financial security- But consider what having a significant shortfall of income replacement in the event of a disability would mean.
When you obtain a disability insurance policy, it is important to secure the highest level of coverage that you can based on your current income at that time. Hopefully, as each year goes by, you are able to increase your income. As your income increases, your disability policy benefits may fall short and be insufficient to meet your financial obligations- Therefore, it is important for you to have your disability policy benefits keep up with your income increases. There are many ways to do this:
- If your income increases dramatically, you may want to add an additional policy
- Benefit Purchase Rider is one way to add coverage, and this is only available through the Provider Plus Limited package offering.
- If you have the FIO (Future Increase Option rider)1 and your income increases significantly, you can exercise some of your FIO to add coverage to your existing policy. And finally-
- If your income goes up steadily, as most do, similar to increases comparable to CPI, then you definitely want to have Guardian's Automatic Benefit Enhancement Rider (ABE Rider).
The Automatic Benefit Enhancement Rider2 is a very convenient rider that helps keep your disability insurance benefit aligned with normal, annual income increases that you might experience when healthy. It is applied automatically to eligible policies and provides an annual 4% benefit increase each year for six years, with no proof of income required. Each increase will include an additional premium based on your then-current age. Rider eligibility will be determined at the time of underwriting.
This is a great way to increase the coverage level by 24% cumulative. As an example- If you earn $100,000 and obtain a policy with $5,000 of monthly benefit, that may be sufficient at that time. However, with the ABE Rider, you can increase your coverage up to $6,200 of monthly benefit at the end of the sixth year!
Some people confuse ABE with a COLA (Cost Of Living Adjustment) 1,3 Rider. Many people think that with the COLA Rider, their benefit will increase each year that the policy is in force. However, that is not true.
The COLA Rider will increase the benefit not while you are healthy and working, but if and when you become disabled. The COLA Rider will increase the benefit while the policyholder is out on disability and collecting benefits- usually increasing the benefit amount each and every year. Do not get me wrong; I am not saying that you should not have the COLA Rider on your policy. You may want to have both riders- depending on your age and potential future earnings level.
It is also important to distinguish between FIO (Future Increase Option) Rider and the ABE Rider. The FIO is a great rider for someone that is going to obtain a disability policy and whose earnings are likely to or definitely will increase substantially- not incrementally. The FIO rider does come at a cost to the policyholder. This rider must be applied for when you want to add coverage to the existing policy- income verification will be needed as well.
So to conclude, you definitely should have the ABE Rider offered through Guardian Life’s wholly-owned stock subsidiary Berkshire Life Insurance Company of America policy- ProVider Plus disability policy. It will allow you some peace of mind to know that your policy is more likely to keep up with your earnings with this rider.