Beyond the Basics: Disability Income Insurance Riders

When you purchase an insurance policy, you're looking for a plan that aligns with your circumstances—your income level, your risks and the concerns that most often keep you up at night. But it's not always possible to find a plan that fits perfectly.

That's where disability income insurance riders come in. These policy add-ons supplement your basic coverage. The advantage of purchasing riders for your disability income policy is that you only pay for what you need, or what you think you'll need. You can customize your policy so it reflects your priorities and covers your concerns in the event of an accident.

Common disability income insurance riders

If you're considering adding riders to your policy, ask your insurance provider for a full breakdown of the add-ons they offer and how they'll affect your premiums. Common types of riders include:

• Own occupation rider: This allows you to claim the benefit even if you're able to do another job. For example, if you're injured and working as a personal trainer but could theoretically take on a less physically demanding position, you can still receive disability income.
• Cost of living adjustment: One of the more expensive riders, the cost of living adjustment, or COLA, increases your benefit amount each year based on the cost of living. This can help you maintain your quality of life if you're out of work for an extended period of time.
• Residual disability benefit: If you rejoin the workforce but need to work fewer hours or in a less lucrative role than you previously held, the residual disability rider ensures that you're compensated for the wages you missed out on as a result of the disability. Without a residual benefit, you may lose your disability income once you start working again.
• Social Security rider: If the Social Security Administration denies your claim for total disability and instead pays a partial benefit, this rider can provide additional income. Just make sure you look at the fine print. If the rider is all-or-nothing, you won't receive any insurance income if Social Security gives you any benefit, regardless of the amount. In the case of an offset rider, you'll receive the insurance benefit, but the provider will subtract your Social Security income from the amount it pays out.
• Accidental death and dismemberment: The insurance company will pay out an additional benefit, the amount of which is determined by your injuries.
• Future increase option: This rider gives you the right to purchase additional coverage in the future, which you may want if you begin earning a substantially higher salary.
• Waiver of premium: With this rider, you won't have to pay your insurance premiums while you're disabled. However, if you recover and return to work, you'll owe monthly premiums again.

In addition to the riders noted above, some insurance carriers offer student loan coverage to help you stay current with your payments while you're out of work. Others allow return of premium riders, so you can recoup your premium costs at a certain point if you end up not needing the coverage. Again, it's important to talk with your carrier so you know all your options, as well as how they'll affect your coverage and monthly expenses.

Which disability insurance riders are right for you?

To ensure your disability income policy covers your specific needs, think carefully about your situation, and then talk with an insurance agent or your financial planner to get advice. If you live in a costly area, you might want to pay extra for the COLA rider so you can maintain your standard of living even if you're in an accident.

Regardless of where you live, the COLA can prove quite helpful if you're out of work on long-term disability, but you have to weigh that against your monthly budget. The future increase option may be attractive to you if your income is steadily increasing and you anticipate earning substantially more money within the next several years.

Ultimately, it comes down to how much you're willing to pay monthly to cover your potential risks. An insurance agent or financial advisor will be able to break down the terms of different riders and help you balance your current financial priorities against potential future concerns.