Anyone who sells disability insurance has encountered two common objections. One is the dangerous belief that disability is something that only happens to other people. The other is complaints about cost. A return of premium rider can help you counter both these objections at once.
Understanding the Return of Premium Rider
The return of premium rider is an extra clause available in some disability insurance policies. Although the details vary, the clause essentially allows policyholders to receive their premiums back, minus any benefits they have received.
The percentage of premiums eligible for return varies. It can be as high as 100% but is often lower. The point when policyholders can claim the return of premium also varies between policies. This article provides more detail on return of premium policy language.
Understanding the Dual Functionality of a Disability Insurance Return of Premium Rider
A return of premium rider enhances the disability insurance policy by providing both savings potential and protection. Here’s how it works:
- Savings Potential
If the client doesn’t need to use the benefit, the insurer returns some or all of the premiums paid over the life of the policy. This feature can act similarly to a savings account because they recoup part or all of their investment. - Protective Role
In the unfortunate event of disability, the client receives disability insurance benefits, helping to ensure they can continue to afford the life they have built for themselves and their loved ones.
In summary, a return of premium rider combines financial safeguarding with a potential savings advantage if the coverage period concludes without a claim.
Who Can Obtain a Return of Premium Rider?
Eligibility for the disability insurance return of premium (ROP) rider isn’t universal and may hinge on several key factors evaluated by insurance companies.
- Age Considerations
Insurance providers may set age limits for ROP rider eligibility. Typically, you need to be within a specified age range when applying. This range can differ between insurers, so it’s important to check specific age requirements with each company.
- Health Status
Your health is a crucial determinant. Underwriters will assess medical history and current health status. Clients who have severe or chronic conditions might be deemed ineligible for a policy with an ROP rider. Maintaining good health is advantageous when seeking this type of coverage.
- Lifestyle Factors
Lifestyle choices heavily influence eligibility and premium costs. Insurers consider habits like smoking and alcohol consumption, as well as potentially risky occupations or hobbies. These factors can impact not just the availability but also the cost of an ROP rider.
- Policy Specifics
The specifics of the individual disability insurance policy also play a role. Not all policies support an ROP rider. Insurers may restrict this feature to certain term lengths or coverage amounts. Be sure to verify if your desired policy includes the option for an ROP rider.
By understanding these factors, you can better navigate the application process for a return of premium rider and find a policy that meets your needs. Always compare offerings from different insurers for the best terms and conditions.
Overcoming the Optimism Bias
Your clients might think that disability isn’t something they need to worry about – but they’re wrong. The Social Security Administration says about one in four 20-year-olds will become disabled before reaching age 67. Those are scary odds.
Part of the misconception may stem from a misunderstanding of what disability often entails. Many people don’t realize that musculoskeletal disorders and cancer are the top two conditions that lead to long-term disability claims, together accounting for close to half of all claims. These are extremely common health issues – most people know someone who has been impacted by one or even both.
You can try to educate your clients on these facts, but it may be impossible to convince some clients of the truth. This is due to the optimism bias, also called the illusion of invulnerability, which Verywell Mind says can cause people to believe that they are less likely to experience misfortune than probability would suggest.
A return of premium rider gives you an alternative way to combat the optimism bias.
Explain it like this: “You’re confident you’ll never experience a disability, but what if you’re wrong? You’ll wish you had disability insurance. And if you’re right and never file a claim, the return of premium rider will let your recover some – or even all – of the premiums you’ve paid.”
Overcoming Price Objections
To overcome price objections, you can try to show that disability insurance actually provides incredible value by protecting a major asset (the person’s income). You can also use these proven methods for overcoming price objections. However, some people simply won’t want to part with their money, especially if they’re also guilty of optimism bias.
A return of premium rider could help sway these people. Once they factor in the premiums that the insurer will return to them (if they don’t have claims that exceed the premiums) or the benefits they’ll receive (if they do have claims), they’ll see that the net amount they’ll pay may be little to nothing.
However, there’s one way this could backfire. Although the return of premium can make coverage less expensive once you factor in the premium refund, this rider can make the policy much more expensive up front. For clients who are struggling to afford coverage, therefore, this tactic won’t work. Instead, you should offer disability insurance options that fit their budget.
On the other hand, if you have a client who has the money to spend on expensive coverage but would rather save it for other things – like retirement or long-term care – the return of premium option may be appealing.
Explain it like this: With the return of premium rider, your policy costs more up front, but you’ll get something for the cost. The insurer will return some or all of your premiums to you, minus the benefits you’ve received. You can reinvest this money in a long-term care insurance plan or your retirement savings.
Although the return of premium rider isn’t a great fit for everyone, it can be perfect for clients in their 20s, 30s, or 40s who have money to spend on a pricey policy but who worry they’ll never use their coverage. The Return of Premium Rider resource offers guidance on how to explain this option to clients and provides you with a handout you can give to clients to help them understand the rider. Download your resource.