Since life insurance does its task well, families take out policies each and every day tailored to their specific needs, budget, and lifestyle.
At its core, life insurance provides a reliable source of income so families can recover from the loss of a loved one without the added burden of unplanned expenses.
However, riders can help extend the benefits of a base insurance policy by taking into consideration a myriad of situations.
Some riders, like the disability income rider, greatly benefit the insured and their family members while he or she is still alive.
Regardless of severity or type, disabilities can lessen an individual’s quality of life and can lead to unanticipated financial burdens for family members once the insured passes away.
A standard life insurance policy without any riders attached won’t cover this type of situation, leaving families with the compounded hardship of income loss and mounting medical bills, among other expenses.
The disability income rider is designed to alleviate financial worries so the insured can instead focus on healing and quality of life with the support of family.
How Does the Disability Income Rider Work?
Also referred to as a living benefit, the disability income rider provides a steady, reliable source of income if the insured can no longer go to work and earn a living for his or her family.
Depending on the stipulations of the policy, disability income riders offer a monthly income for a pre-defined duration and amount.
The insured and his or her family can use the monthly income to pay for medical expenses in lieu of the policyholder’s normal wages.
Some riders will waive the monthly life insurance premiums, similar to the common waiver of premium rider provision. Contingent upon the policy’s conditions, waived premiums will either expire once the policyholder turns a specific age or will be waived for life.
The benefit of the rider is typically paid as a percentage of the face value of the base life insurance policy taken out. Most insurers will pay a monthly stipend configuration of 1 to 2 percent.
For a $1 million policy, the paid benefit comes out to $10,000 a month. Or, for a $500,000 policy, the paid benefit would be $5,000 a month. These amounts, along with the waived life insurance premium, could certainly ease some financial burdens for the insured and his or her loved ones.
Similar to the waived premiums mentioned above, this paid benefit will last until the insured turns a certain age (65 years old is common), or will be paid out for life.
However, receiving any form of income from this rider may incur additional policy costs that will need to be taken into account. These additional costs could end up being more affordable than taking out a separate disability policy, though, so conduct research and compare offerings once you’re ready to make a final decision.
Criteria for Insurance Claims
Like most insurance products, a disability income rider has its fair share of conditions, terms, and limitations.
First, we must tackle how insurance companies define what constitutes a disability in relation to this rider.
With some insurers, a policyholder must be diagnosed with a permanent health condition by a licensed doctor or physician. Insurers will likely require some type of documentation proving the disability is permanent, while some providers may accept verification of Social Security disability payments as sufficient evidence of permanent disability.
Other providers may request a time period that must elapse before it will pay out, such as six months before taking advantage of income or waived premiums.
The risk of a disability is higher than one may expect, though. Therefore, it pays to understand the insurer’s precise definition when determining if the disability income rider is right for you.
Your life insurance policy will indicate if the disability is covered for just an accident (possibly work-related) or as the result of an illness.
Regardless, most insurance companies stipulate an initial waiting period before they will begin paying the benefit.
It’s essential individuals maintain enough savings and a disposable income to cover the lost income.
The insurance company may require a separate waiver of premium rider be added to the existing policy to cover the cost of premiums for a set time or the lifetime of the individual.
The policy will also spell out the terms of the benefit and may include a set monthly amount for a specific duration.
If the insured is on Medicare or receives Social Security benefits, he or she should research any possible effects on these benefits with the paid claim of the disability income rider.
Benefits of a Disability Income Rider
The overwhelming advantage of this life insurance rider is the security of a guaranteed income coming in even with a fixed duration.
This extra safety net can go a long way toward maintaining the individual’s quality of life while dealing with a permanent disability.
While the benefit is being paid, the life insurance will not lapse due to nonpayment if it is a condition of the rider.
The cash value of a life insurance policy could continue to accumulate, too.
The insured could receive the annual dividends, as per the terms of the policy. The insured can take out loans against it, if needed.
And, if an unexpected event should occur, the beneficiaries will receive the death benefit to manage any remaining debts or final expenses.
Most insurance riders require the insured purchase the rider at the time the policy is issued, or at the policy’s origination.
Often the disability income rider must be attached to one’s base life insurance policy when the policy was first taken out. If this rider is something you’ll need now or in the near future, it’s best to go ahead and include the provision before it’s too late.
Also, the wise prospective buyer will look into and examine any fees associated with the cancellation of the rider, though it would be atypical to deal with any.
This rider may also not be available in certain states, so contact your insurance company if you have any questions about this rider’s availability in your state.
Final Thoughts on the Disability Income Rider
On a positive note, adding additional coverage with an insurance rider is often an affordable alternative to taking out a separate disability income insurance policy.
A disability income rider offers the added security of a guaranteed income should a permanent disability keep an individual from working and earning an income.
This rider prevents the lapse of the life insurance policy so the insured can continue to enjoy the benefits of the cash value and dividends to supplement his income.
If you’re seriously considering this rider, make sure to compare rates and evaluate the amount of coverage needed in the event you became permanently disabled. Also, it’s important to determine rider cancellation fees, if any, in case you need to maintain a stricter budget after originally including this provision.
Even though most insurance companies offering the disability income rider include the same standard features to clients, there should be some ample room left for customization.
In reality, attaching the disability income rider to one’s standard life insurance policy is a small price to pay to ensure financial security and peace of mind for one’s family members.