Want to give your clients an income protection package that is perfectly tailored to suit their needs? Then, riders are key. Like toppings on a sundae, disability insurance riders customize policies with additional features. While there are many riders to choose from, and the details vary by disability insurance carrier, below are five popular options that should be considered for every policy you sell.
1. Cost of Living Adjustment Rider
Disability insurance supports long-term financial security, especially when you add a cost of living adjustment (COLA) rider. With this rider in place, the monthly benefits increase to keep up with inflation. There are a few reasons why this is beneficial:
- Protection Against Inflation: With inflation, a dollar in today’s money buys less than it used to. In other words, inflation erodes the purchasing power of money over time. If you’re working, wage and salary increases offset rising inflation – but this isn’t an option for people who depend on disability benefits. A COLA rider ensures your insurance benefits increase over the duration of your claim, which will help you maintain your lifestyle and make ends meet despite inflation.
- Safeguarding Future Needs: Inflation is just one reason why you may need more money in the future. In addition, your personal financial needs may increase over time, especially during a prolonged disability period.
- Peace of Mind: Many people are worried about the impact of inflation. Knowing that your benefits will increase to match your rising living expenses offers peace of mind now and during a disability.
Although a COLA rider may be less important for disability insurance policies with shorter benefit periods, it is a smart choice for policies with long benefit periods.
2. Waiver of Premium Rider
A disability insurance policy replaces some of a person’s income, but it does not replace 100% of the pre-disability income. As a result, money may be tight, especially if you have additional medical bills. During this time, disability insurance premiums may become a burden. The waiver of premium rider means that if you become disabled and qualify for benefits, the insurer will temporarily suspend your premiums, possibly after a waiting period.
This is a good idea for a couple reasons:
- Financial Security During Disability: Suspending disability insurance premiums frees up your finances, allowing you to focus on recovery and time with family.
- Protection of Coverage: If you can’t afford to pay your premiums, your coverage will lapse, meaning you’ll lose your benefits. The waiver of premium rider safeguards your policy during times of disability.
As with the COLA rider, a waiver of premium rider is especially important during long periods of disability. For instance, if you were to suffer a permanent disability and needed to receive benefits for 20 years, not having to pay premiums would make a big difference to your long-term financial health.
3. Student Loan Protection Rider
For recent college graduates – and even some not-so-recent graduates – paying off student loan debt is a significant financial hurdle. A student loan protection rider offers a safety net, ensuring financial stability even in unforeseen circumstances. If you become disabled and qualify for benefits, this rider will cover some or all of your student loan payments. This benefits you in several ways:
- Protection from default. Although some people qualify for student loan discharge due to total and permanent disability, many people who are unable to work due to illness or injury don’t qualify this.
- Increased financial flexibility. Continuing to pay student loans during a period of disability may strain a tight budget. A student loan protection rider gives you more financial breathing room.
- Financial Peace of Mind. When your policy covers your student loan payments, you can focus on your recovery and professional growth without the worry of debt accumulation. This allows you to maintain financial health even if you’re unable to work.
For professionals with significant student loan debt, a student loan protection rider may be worth considering.
4. Future Purchase Option or Benefit Increase Rider
The future purchase option (also known as a benefit increase rider) allows you to increase your coverage to match increases in your income. This is typically possible on an annual basis and requires no medical underwriting. This rider is worth considering to:
- Secure future coverage. As you progress in your career, your income should increase. To protect your growing income, you’ll need more disability insurance. Buying a new policy is a hassle, whereas exercising the FPO rider makes this easy.
- Guard against the financial impact of future health problems. Applying for more coverage becomes increasingly difficult as you age. If you develop any health conditions, it will be especially difficult to secure additional coverage. With the future purchase option, you don’t need to worry about this.
If you don’t expect your income to increase much – for example, because you’re buying coverage late in your career and you’ve already reached the top position – the future purchase option may be unnecessary. However, for many early-career and mid-career professionals, this is a fantastic option.
(This rider is also great for insurance agents, who will earn a first-year commission if a policyholder uses the FPO rider.)
5. Non-Cancelable and Guaranteed Renewability Riders
Understanding the nuances of different provisions in disability insurance policies will help you protect your investment. Two important terms you’ll frequently encounter are guaranteed renewable and non-cancelable. Although these two provisions sound similar, there’s a critical difference that impacts long-term costs.
- Guaranteed Renewable: If your policy is guaranteed renewable, it remains in force as long as you pay your premiums. The insurer cannot cancel your policy or change the terms. However, the premiums may increase, but only if they increase for the entire class and not just for your policy.
- Non-Cancelable: If your policy is non-cancelable, the insurer cannot increase your premiums.
If a policy is both guaranteed renewable and non-cancelable, the disability insurance company cannot cancel your coverage, change your terms, or increase your policy as long as you keep paying your premiums.
Options Are Key
All these disability insurance riders sound great. Why wouldn’t you always include them? Keep in mind that adding riders may increase the cost of the policy. That’s why it’s important to select the riders that are most relevant for your clients.
Student loan riders are a good example. If you’re working with a doctor who has $300,000 of student loans she will be paying back over a 20-year term, a student loan rider makes a lot of sense. On the other hand, if your client is an attorney with $10,000 of student loans that will be paid off in two years, the student loan rider isn’t worth it and may unnecessarily inflate the quote.
When selling disability insurance, give clients a few good options, and be mindful of their budget constraints. You can use the DIS Analyzer to quickly generate five competitive disability insurance quotes, and our team is always available to help you strategize on the best policy structure and sales approach. Learn more. Need additional information on how to structure disability insurance coverage for your clients? Download our Disability Insurance Crash Course!