Video and Transcript 7: Optional Riders
We have just covered the four key components which make up the foundation of your income protection plan. In summary, that includes the true own occupation definition, non-cancelable/guaranteed renewable provision, residual benefits, and guaranteed future purchase options. There are optional riders which, in our professional opinion, should not be automatically included in your plan until you fully understand the benefits and the corresponding costs. The reason is because adding optional riders can inflate the premium to your disability policy significantly. And at some point, you have to ask the question, how much do I want to pay for a policy I hope I never use? This is where we follow the golden rule. In your position, we would want the cost of optional riders to be unbundled and thoroughly explained. So let’s start with the most common provision we see added in proposals, the cost of living adjustment rider. What does the cost of living rider mean? Its purpose is to protect you from inflation while you are out on a claim. What do we mean by inflation? Inflation refers to the increased costs of food, shelter, clothing, and utilities, et cetera, as time goes by. You can choose to purchase an inflation factor, which can range between 3 and 6%, and it can be either simple adjustment or compound increase to your monthly benefit. Bear in mind, this benefit increase only commences once your disability claim has been approved. The higher the percentage and whether it’s simple or compounded, the higher the premium. Understanding that you can own these policies for well over 30 years, the cost of this provision can really add up. This rider can be very expensive and you must ask yourself the question. Do I really need it? You see, if your policy is a true own occupation policy, we contend that the ability to work and receive a full salary in some other occupation is an inherent adjustment to the cost of living, making this provision a personal choice. That is why we do not include it in one of our four key components. We also recommend that you ask the question, would my premium dollars be better served in some other manner, paying down student loans, purchasing life insurance, saving for your children’s college, et cetera? These are the questions we suggest you ask before you commit.
Other optional riders which are typically included in disability proposals are the catastrophic benefit rider, and more recently, the student loan rider. The catastrophic benefit can be considered a long-term care provision since it has the same definition of a long-term care policy, the inability to perform two out of the six activities of daily living: dressing, toileting, transferring, continence, eating, bathing, or separately the diagnosis of severe cognitive function. The student loan rider has recently developed as the result of the growing burden of student loan debt physicians now face. In summary, when reviewing a disability insurance proposal, we urge you to request the breakout of each optional rider. Have the provisions explained to you and be shown the costs with and without the specific features. The purpose of the exercise is to help you customize what works best for you without being pressured into purchasing a policy that may have an inflated premium which may put a strain on your budget.