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Long-term disability insurance pays you a benefit if you can’t work because of an illness or injury. But while a disability insurance policy is essential, the base policy only gives you the minimum coverage. To get the best disability policy, you’ll need to add disability insurance riders.
Disability insurance riders are optional benefits that enhance your disability policy. But which riders should you get and which ones aren’t worth it? Read on to find out.
Are These Long-Term Disability Insurance Riders Worth It?
Your basic disability income insurance policy comes with the bare minimum in benefits. Here are some of the more common riders you can add to enhance your disability coverage.
Own occupation rider
When you’re on a disability claim, the monthly benefit amount that the insurance company pays is contingent on you not working another job. The own occupation rider removes this condition so you can collect benefits while having another form of gainful occupation.
This rider is only available for low-risk and highly specialized jobs in occupation classes 3A and 4A. For example, doctors, dentists, executives, accountants, lawyers, and engineers would all be good candidates for this rider.
Why is this rider critical? Imagine a surgeon diagnosed with multiple sclerosis and loses his ability to perform surgery. Although he loses dexterity in his hands, he’s motivated to start a new career that doesn’t rely on this function.
Without the own occupation rider, his benefits would stop once he earns an income in his new occupation. But if he bought it, he wouldn’t have to worry about losing his policy benefits once he starts his new job. This is important because chances are he wouldn’t earn as much in his new occupation compared to his benefit amount.
Is it worth it? Because the insurer is still on the hook for disability payments if you’re working another job, the own occupation rider costs a bit more than other disability riders. However, high-earning professionals and self-employed individuals will find this rider invaluable.
Regular occupation extender
Most long-term disability insurance policies (especially group coverage) change the definition of a disability after two years on a claim, making it harder to qualify for benefits. Instead of not being able to perform your occupation’s material and substantial duties, you have to show that you also can’t do a comparable job based on your education, experience, and training.
Put another way; this changes the definition from regular occupation to any occupation.
This rider extends the regular occupation period from two years to the length of your benefit period, which is usually age 65.
Is it worth it? Since this rider costs less than the own occupation rider and is available to more occupation classes, it’s a must-have to protect your disability income from a long-term claim.
Partial disability benefits rider
Not all injuries and illnesses result in total disability. Some render you partially unable to do your job. That’s where the partial disability benefits rider can help. It pays you 50% of total disability benefits for the first 24 months if:
- You can’t perform one or more of the important duties of your occupation, or
- You can’t perform the important duties of your occupation for at least half the time normally required.
After 24 months, the partial benefits rider will pay 25% for the remainder of the benefit period.
Is it worth it? Since the partial benefits rider doesn’t cost too much, it’s a good idea to get it to protect yourself from a partial disability.
Residual disability benefits rider
Unlike the partial benefits rider, which doesn’t pay benefits based on income loss, the residual disability rider does. It provides a monthly benefit proportional to your income loss, assuming you’re not totally disabled but experience an income loss of at least 20% of your prior income.
For example, if you can still work but, due to your disability, earn 60% less than pre-disability, the disability policy will pay you 60% of the total disability benefits.
Is it worth it? Although the residual disability insurance rider costs a bit more than partial, it provides better benefits if you’re not totally disabled.
Cost-of-living adjustment rider (COLA)
The cost-of-living rider automatically increases your disability benefit by inflation during a disability to maintain its purchasing power. Increases in benefits occur annually and match the consumer price index up to a limit, like 8% or 10%.
For example, if you receive $5,000/month in year one of a disability and the consumer price index is 5%, you will receive $5,250/month in year two. Assuming inflation of 5% per year, your disability benefit will increase to $6,381/month after five years and $8,144/month after ten years.
Is it worth it? Yes. For a small cost, the cost-of-living rider ensures that the disability income maintains its purchasing power throughout a long-term claim.
Future increase option rider
In most cases, your income will rise over the years as you progress in your career. You may receive pay raises or change to a higher-paying job. However, your health may deteriorate, making you ineligible for a higher coverage amount.
The future increase option rider, also called the guaranteed purchase option or guaranteed insurability option, lets you buy additional coverage if your earned income warrants it without needing to qualify medically. That means no medical exam or questions.
Any additional coverage purchased is based on your age when you exercise the rider. Future purchases are limited to 20% of the additional benefit you bought. For example, if you purchased $10,000 in total additional coverage, you can increase your benefit amount up to $2,000 on each policy anniversary.
The rider expires at age 55, so even if your earned income warrants it, you can’t buy additional coverage after this age.
Is it worth it? This rider is a must-have for younger policyholders who haven’t reached their earning potential yet. You never know how your health will change over the years, so adding this disability rider is a small price to pay to lock in your insurability.
Accidental death and dismemberment rider
This provides a lump sum benefit for accidental bodily injury, including loss of life, sight, a hand or a foot, or both hands and feet. You can buy up to $400,000 of benefit amount. The disability policy will pay half the amount for losing one hand or foot or sight of one eye.
Is it worth it? Not really. The situations where this disability rider will pay are rare, so it’s not worth the added cost. Besides, you’ll likely receive the monthly disability benefit anyway if you had any of these accidents, reducing the financial necessity of a lump sum payment.
Health care professions
Health care professionals diagnosed with hepatitis B, hepatitis C, or HIV can be prohibited from doing the primary duties of their job by legislation or regulations. Even though they are not physically disabled, they may still lose their income-earning ability.
This disability rider removes the requirement that you are unable to perform the main duties of your job to receive benefits. As long as a medical or dental regulatory or licensing body prohibits you from working, you’ll qualify for disability benefits.
An enhanced version of this rider stipulates that you can voluntarily stop your practice even if not restricted by sanctioning bodies.
Is it worth it? The basic version of this rider actually doesn’t cost anything, so you want to make sure your policy includes this if you are a health care professional.
First-day accident rider
Instead of waiting the entire elimination period to start receiving benefits, the insurance company will pay you the first day a disability begins due to an injury.
Is it worth it? No. This rider is quite expensive, so you should get the other disability insurance riders before buying this one. Try to build an emergency fund that lasts three to four months to act as a buffer before benefits kick in.
Return of premium rider
Want to get some of the premium money back if you don’t make a claim? Now you can with the return of premium rider. You cannot have made claims greater than 20% of the total premium paid to qualify for a refund. Any claims payments made to you will reduce the amount returned to you. Also, the insurance company refunds 50% of the premium after seven or eight years.
For example, if your annual premiums are $3,000, you will have paid $24,000 after eight years. The insurance company will refund $12,000 at the end of year eight. You can choose to reduce your premium or take it in cash.
Is it worth it? The return-of-premium rider is one of the most expensive disability insurance rider. Since you only get half your money back, you’re probably better off investing it instead of buying the rider.
Retirement protector
This disability rider lets you maintain your retirement savings while you remain totally disabled. It pays up to $2,000/month into a non-registered account that you can transfer into your RRSP.
Is it worth it? Would your living expenses take up the entire monthly disability benefit amount? If so, you wouldn’t have any money left over to invest, so this rider helps solve your retirement savings problem.
Built-in Benefits Of Your Disability Insurance Policy
Besides disability insurance riders that you have to buy, your disability policy may also have the following built-in benefits at no extra cost. Here are some of the more common ones you’ll find.
Catastrophic disability
This benefit pays out an extra 25% of the monthly benefit if you are severely totally disabled. For example, you:
- Lose your sight in both eyes
- Suffer a severe loss in cognitive function requiring supervision
- Can’t perform two of the following six activities: bathing, feeding, dressing, toileting, continence, transferring
- Are diagnosed with a terminal illness
Presumptive disability
Presumptive disability means if you suffer a loss of eyesight, hearing, speech, or loss of use of two limbs, the insurance company will pay full benefits until age 65.
Waiver of premium
If you’ve been disabled for 90 days, the insurer will waive premium payments while you’re disabled. It will also refund premiums paid during those first 90 days.
Recurrent disability
Suppose you become disabled again from the same or related cause within 12 months. In that case, the new disability will be considered a continuation of the prior one, and you don’t have to satisfy the elimination period again.
Recovery benefit
This pays a benefit for up to six months if after you return to work, you still suffer from an income loss of at least 20%.
Automatic benefits increase rider
Although technically not a rider, this acts like the future increase option rider. However, instead of manually exercising future purchases, this feature automatically increases your benefits by 3-5% every year.
Not available from every insurance company, this built-in benefit requires financial evidence to justify the increased benefits every three years. The premium will also increase as your benefits increase.
Survivor benefit
If you die while on a disability claim, your beneficiary will receive a lump sum payout equal to three times the monthly benefit.
Which Long-Term Disability Insurance Rider Will You Get?
Although it’s tempting to get all of these disability insurance riders, you may find that doing so would exceed your budget. On average, disability insurance costs about 3-5% of your annual income. Therefore, you will want to pick and choose carefully to reach this price point.
If you know which disability riders you want, contact us at info@briansoinsurance.com or 604-928-1628 to get a customized quote. Otherwise, use the form below to request a free no-obligation quote.
Get Your Disability Insurance Quote Now
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