Important Optional Features
Protection Against Inflation
Suppose you are receiving a $6,000 monthly benefit. At 6% inflation, that benefit will be paying only $1,872 worth of bills at the end of 20 years. Therefore, one of the most important aspects of your disability income plan should be the protection it affords against inflation.
Individual disability insurance policies generally offer a cost of living rider that will adjust benefits for inflation during a long-term claim. Most of these riders tie adjustments to increases in the Consumer Price Index, though all of them “cap” the maximum increase at some percentage, such as 4% per year.
Some policies put a ceiling on the maximum benefit that can be paid under the cost of living rider. A common ceiling would be to stipulate that once the original benefit has doubled, no more increases in the benefit amount would be made, regardless of the continuing effects of inflation. The best policies, of course, have no such ceiling; benefits will be increased as long as the Consumer Price Index warrants it.
Future Increase Option
As your income increases over the years, due both to career growth and inflation, the amount of disability insurance coverage you originally purchased may become inadequate. The solution, of course, is to purchase more coverage. But what if your health has deteriorated or other changes in your circumstances make it more difficult or even impossible to obtain additional income protection coverage?
A future increase option is the answer. As long as your increased income qualifies for more coverage under the company’s issue limits, the future increase option guarantees your right to purchase additional coverage up to a stated age without evidence of medical insurability.
Automatic Increase Rider
Some individual disability insurance plans offer a rider that automatically increases monthly benefits for a specified period of time (e.g., 5 years). A typical increase is 4% compounded. Good disability insurance plans provide automatic increases despite any changes in your health, income or occupation. The purpose of this rider is to provide increases in coverage for those who experience periodic increases in salary. No separate application is needed, unlike the case when exercising the future increase option.
Other Policy Provisions:
Own Occupation Definition and other definitions of Total Disability
Waiver of Premium
Capital Sum Benefit
Transplant and Cosmetic Surgery Benefit
Exclusions and Limitations