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.
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).
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.
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
All or Nothing Rider
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.
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.)
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.)
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
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.
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.
Optional policy riders can enhance the coverage of disability income insurance:
Business Uses of Disability Income Insurance include:
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.
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