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1. General Insurance Concepts
2. Producer Roles and Receipt Types
3. Underwriting
4. Health Insurance Basics
5. Required Policy Provisions
6. Optional Policy Provisions
7. Medical Expense Insurance
8. Group Health Insurance
9. The Affordable Care Act (ACA)
10. Disability Income Insurance
10.1 Benefits and Provisions
10.2 Optional Riders and Business Integration
11. Accidental Death and Dismemberment Insurance
12. Long Term Care Insurance
13. Dental Insurance
14. Section 125 Plans and Limited Policies
15. Federal Government Programs
16. Medigap and Medicaid
17. Health Insurance Taxation
Wrapping up
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10.2 Optional Riders and Business Integration
Achievable Health
10. Disability Income Insurance
Our Insurance Health course is in "early access"; the content on this page is a work-in-progress.

Optional Riders and Business Integration

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Optional Policy Riders

Optional riders can enhance a disability income insurance policy by offering additional benefits such as increasing coverage over time, waiving premiums during a disability, supplementing or coordinating with Social Security benefits, protecting against inflation, and reimbursing certain medical costs or supporting return-to-work programs. These additions help tailor the policy to the insured’s evolving financial needs and risk exposure.

Guaranteed Insurability Rider

The guaranteed insurability rider allows the insured to increase coverage, without providing evidence of insurability, at predetermined points in time and for predetermined amounts (the insurer will require the policy owner meet an earnings test).

Waiver of Premium Rider

When a disability occurs, the policyowner must keep the policy in force. A waiver-of-premium provision/rider waives premiums after the policy’s elimination period (commonly 90 days, or as stated in the contract) and is typically applied retroactively to the start of disability once that period is satisfied. Without this provision, premiums must continue to be paid to avoid lapse; if premiums are not paid and the grace period expires, coverage can terminate even during a claim.

Social Security Rider

While it is difficult to meet the Social Security Administration’s definition of disabled, anyone who does will want to know which Social Security rider they have on their policy. This rider has two very different variations:

Offset Rider

  • Pays up to the rider’s stated amount, reduced by Social Security Disability Insurance (and sometimes other government benefits like Workers’ Comp) per contract terms.

All or Nothing Rider

  • Only pays benefits if Social Security denies the claim. If Social Security pays anything, the policy pays nothing.
Sidenote
Some insurers offer two types of Social Insurance Supplement riders
  • Occupational SIS: Offsets for all government programs, including SSDI and Workers’ Compensation.
  • Non-Occupational SIS: Coordinates only with SSDI (not Workers’ Comp)

Inflation Protection Rider/Cost of Living Adjustment

This rider typically increases monthly benefits on an annual basis while the insured is on claim. Increases are often tied to CPI (with caps such as 3%–6%, simple or compound), and the exact formula varies by contract.

Sidenote
Personal Consumption Expenditure (PCE) Price Index

Technically, the Federal Reserve targets inflation based on the Personal Consumption Expenditure (PCE) Price Index, which is very similar to CPI but with nuanced differences in weighting and measurement.

If you’re interested in the details, this article is a great reference: PCE vs. CPI: What’s the difference and why it matters right now

Accidental Death and Dismemberment (AD&D) Rider

AD&D covers accidents only. Sickness is not covered. This coverage is often written as a rider on a life insurance policy. The policy will pay a specific sum if death is the result of an accident or if the insured becomes dismembered. (Dismemberment benefits follow a schedule and are usually a fraction of the principal sum.)

Rehabilitation Benefit

Covers the cost of approved vocational or physical therapy services that support the insured’s return to work following a covered disability. May include training, therapy, or job placement assistance. (Benefits generally require insurer approval and must be part of an agreed rehabilitation plan.)

Medical Reimbursement Benefit Rider

Reimburses the insured for certain medical expenses related to a covered disability. Some policies include a separate non-disabling injury rider that covers medical expenses from injuries that do not cause total disability.

Refund Provisions

  • If a return-of-premium rider is added, the contract refunds a stated percentage of premiums paid—typically net of any benefits paid—on scheduled dates (e.g., every 10 years, at age 65, or at death), per the policy formula.

Business Uses of Disability Income Insurance

The most common type of business use policy is the business overhead expense policy. This policy pays normal rent, utilities, employee salaries, and other business expenses incurred while the business is closed or operating at a lessened capacity due to the disability of the owner.

Sidenote
Know this...

Business overhead expense insurance will NOT pay the salary of the business owner, but will cover the salaries of employees.

A disability buy-out policy, similar to a life insurance buy/sell agreement, is used to assist partners in buying out the interest of a disabled partner. These policies are usually written with a long elimination period. Rarely will a disabled owner want to be bought out until it is clear that he/she will not be returning to work.

A key person disability income policy provides a company with funds to offset lost income while a key employee is disabled.

Credit disability policies protect debtors and creditors alike, by paying to the creditor an amount equal to the loan payment while the debtor is disabled. The maximum benefit a credit disability policy will pay is the amount of the outstanding debt, and the maximum term a credit disability policy will be issued for is term of the outstanding debt.

To qualify for group credit disability insurance, creditors are generally required to have a minimum volume of new debtors annually — typically around 100.

Like most other types of health insurance, disability income policies may be cancellable, non-cancellable, or guaranteed renewable and certain conditions (and the resulting disabilities) are excluded from coverage. Disabilities resulting from war or military service, or injuries that are self-inflicted or sustained while committing a crime or while piloting a personal aircraft are generally excluded from coverage.

Lesson Summary

Optional policy riders can enhance the coverage of disability income insurance:

  • Guaranteed Insurability Rider
  • Waiver of Premium Rider
  • Social Security Rider (Offset or All or Nothing)
  • Inflation Protection Rider
  • Accidental Death and Dismemberment (AD&D) Rider
  • Rehabilitation Benefit Rider
  • Medical Reimbursement Benefit Rider, etc.

Business Uses of Disability Income Insurance include:

  • Business Overhead Expense Policy
  • Disability Buy-Out Policy
  • Key Person Disability Income Policy
  • Credit Disability Policies

Certain exclusions may apply to disability income insurance policies, such as disabilities resulting from war, self-inflicted injuries, crimes, or certain activities like piloting a personal aircraft.

Chapter Vocabulary

Definitions
Business Overhead Expense Insurance:
A type of business disability income insurance designed to pay for continuing overhead while an owner is disabled.
Credit Disability
Makes monthly loan/credit transaction payments to the creditor upon the disablement of an insured debtor.
Credit Involuntary Unemployment
A type of credit insurance that helps cover loan payments when the insured becomes involuntarily unemployed due to reasons such as layoff or business closure. It typically pays a monthly benefit equal to the loan payment amount for a limited period. It does not cover voluntary leave, family-related absences, or disability, and the term ‘Credit Family Leave’ is not commonly used in standard policy language.
Credit Life Insurance
Policy assigning creditor as beneficiary for insurance on a debtor thereby remitting balance of payment to creditor upon death of debtor.
Key-Person Insurance
Insurance on the life or health of a key individual whose services are essential to the continuing success of a business and whose death or disability could cause the firm a substantial financial loss.
Overhead Expense Insurance
Insurance that covers such things as rent, utilities, and employee salaries when a business owner becomes disabled. The insurance benefit is generally not a fixed amount, but pays the amount of expenses actually incurred.
Principal Sum
The amount payable in one sum in event of accidental death and, in some cases, accidental dismemberment. When a contract provides benefits for both accidental death and accidental dismemberment, each dismemberment benefit is equal to the principal sum or some fraction thereof.
Rehabilitation
Designed to assist an injured worker to return to gainful employment as quickly as possible. Benefits include physical and occupational therapy and treatment at a rehabilitation or vocational training to learn another job if necessary.

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