A disability income rider is a very valuable add-on available to policy owners when they purchase a life insurance contract. A disability income rider provides financial protection to the owner of a life insurance contract that a disability will often incur. It does so in a couple of ways (potentially depending upon your life insurance company).
Usually a disability income rider will pay a monthly income of 1% of the face value of the contract, and/or will also waive the monthly cost of the life insurance contract. A disability is cumbersome, hurts quality of life, and is also very expensive. This bit of protection can improve a difficult time if a disability occurs.
Definition Of A Rider
A life insurance rider is an additional stipulation, feature, exclusion (not common) or other benefit to a life insurance contract. Most riders are a benefit in addition to the standard death benefit of the contract that is either included as a part of the life insurance policy, or is an additional benefit that the owner of the contract pays for. Examples of common riders include waiver of premium rider, accelerated death benefit rider, the disability income rider, and the guaranteed insurability rider.
1% Of Face Paid As A Monthly Income
If this stipulation is included as a part of your disability income rider, this can be a healthy source of income for the owner of the policy in a time of need. This benefit can become quite substantial if the face amount of the policy is very large. For instance a $200,000 face amount could pay $2,000 per month.
This income may last either until a specified age (i.e. age 65), or it may last the lifetime of the insured, depending upon the stipulations of the specific policy.
To have the right to receive income from the disability income rider will add a cost to the policy, but the benefit is usually substantially large to warrant any added charges. While the additional cost is less than the insurance charges for the base of the policy, it is always smart to fully understand and consider the charges. Sometimes this may be a less expensive option than a separate disability policy, and sometimes it may be more expensive. We always encourage clients to compare each option fully before making a purchasing decision.
Similar to a separate rider known as a “waiver of premium rider”, the disability income rider will often waive future premiums charges for the insurance. This can often make a separate waiver of premium rider unnecessary to add to a policy with a disability income rider already attached. The premiums may be waived in connection with a disability income rider until the insured person reaches a certain age, or for the remainder of their life depending upon the specific rules of the policy. The length of the waiver may also be affected by the age that the insured person becomes disabled.
Disability Must Be Permanent
In order to file a claim for the disability income rider the disability must be permanent in nature, leaving the insured person unable to return to work. Also, in order to qualify for the benefit, the insured person must be disabled for at least 6 months prior to receiving any income or waiver of premium. Usually the life insurance company will require either a written document from a medical doctor certifying the disability and the timing of the disability or a social security letter granting social security benefits for the disability. After reviewing the documents, if everything is in good order the company will grant the claim.
Cash Value And Dividends Continue
An important feature of the disability income rider is that in addition to the income provided by the claim, if you have a participating (whole life insurance) policy, you will continue to be paid dividends. The cash value also continues to grow at least at the illustrated minimums. The continuation of dividend payments can supplement your income from the policy even further, and this feature can be very valuable if the dividend payments are substantial.
Owners are also still allowed to take loans and withdrawals from the policy.
Do You Need The Rider?
The important things to evaluate when deciding if you need a disability income rider are your total current disability coverage (through your employer, any long term disability policies, and social security), the amount you would need if you were to become disabled, and the cost of obtaining the coverage. If you need additional coverage, and the coverage that you can obtain through the DI rider is lower or comparable in price to that of a separate disability policy (and it oftentimes is), it usually is a useful rider to add to your policy.
Before adding the rider learn the rules regarding cancelling the rider (if your needs or budget changes and you no longer want to pay for it). Sometimes it can only be cancelled for a fee, sometimes it can be cancelled for free, and sometimes there is a cost associated with the cancellation. Make sure that this is clearly understood before you take out your policy. Oftentimes, this rider can only be added when the policy is first issued, so it is important to consider this at the time that you purchase your life insurance policy. If you are interested in a policy with a disability income rider attached please enter your zip code above to compare quotes on policies.