When you provide a disability income quote to your clients, it’s important to consider their occupation and financial situation. Not everyone needs a disability income policy with all the “bells and whistles.” To ensure you have the best disability insurance policy tailored to your cleint’s needs, it’s important to understand the riders and details of the policy. In this blog, we will explore the various riders and options in an Individual Disability Income Policy. By familiarizing yourself with these essential definitions, you can confidently help your clients assess and select the best policy for their particular occupations and financial profile.
Let’s delve into the details:
- Elimination Periods: All long-term disability insurance policies have an elimination period, also known as a waiting period. This period specifies the duration the insured must be disabled before the policy starts paying benefits. Typical elimination periods range from 60 to 365 days. The most common elimination period is 90 days. Choosing a shorter elimination period increases the premium but also provide quicker access to benefits. On the other hand, opting for a longer elimination period lower the premium, but it’s important to ensure your clients have sufficient emergency savings to cover expenses during that waiting period.
- Maximum Benefit Periods: The maximum benefit period determines how long the insured will receive disability benefits. It can be a specific number of years or until the insured reaches a particular age, typically 65, 67, or 70. Longer benefit periods offer more extensive coverage but come with higher premiums. Most policies have a maximum benefit period until age 65 to align with other assistance programs for retirees and the disabled, such as Social Security. It’s important to select a benefit period that aligns with the client’s comfort level and long-term financial goals.
- Riders: Enhancing the Policy
- a) Residual/Partial Disability Insurance: This is an essential rider for all disability income policies because statistics show that partial disability claims are more common than total disability claims. The rider covers partial loss of income when the insured can still perform their occupational duties but experience reduced working hours or productivity due to a disability.
- b) Future Purchase Option Rider: As the insured’s income grows over time, they may need to increase their disability insurance coverage to protect a higher percentage of their salary. The future purchase option rider allows the insured to increase their benefit without undergoing new medical underwriting. This rider safeguards their ability to boost coverage based on income growth, ensuring their policy stays in line with their evolving needs. It’s an important rider for young professionals because as they advance in their careers, they can ensure their disability benefit keeps pace with their income with no medical underwriting.
- c) Student Loan Rider: The student loan rider is beneficial for young professionals burdened by student loan debt. This rider provides additional coverage beyond the base policy benefit. It helps the insured make student loan payments while they collect a disability benefit, relieving financial strain during a challenging period.
- d) Catastrophic Disability Rider: This rider offers supplemental benefits if you become catastrophically disabled, defined as the inability to perform two or more Activities of Daily Living (ADLs). It provides extra financial support, especially when significant healthcare expenses arise, ensuring your base benefit is not depleted entirely.
- e) Cost of Living Rider (COLA): Over time, inflation erodes the purchasing power of fixed benefit amounts. The COLA rider adjusts the insured’s benefit annually to keep pace with inflation, protecting their income against the rising cost of living. It’s particularly important for young professionals. In the event of a claim early in their careers, the COLA rider will help them keep pace with inflation over the years.
- Non-Cancelable Rider: The non-cancelable rider guarantees that the insurance company cannot raise the insured’s premiums as long as they continue to pay them. It provides premium rate stability and protects them from sudden cost increases, ensuring affordability and predictability over the life of their policy
- Guaranteed Renewable Rider: This rider prevents the insurance company from making changes to your policy terms or cancelling the policy together.
Source Brokerage, Inc. can help you tailor a disability income policy that best fits the needs of your clients. The best policy for a physician client is not the same as the best policy for an IT consultant. Age, occupation, salary and gender are all things to consider when designing a disability income policy. You can rely on the expertise of our DI specialists to provide quotes, explain the quotes, and help you design a policy suited for your client’s financial and occupational needs. We’ll even help you make the presentation to the client.