Disability Insurance: Coverages & Riders To Know About
Disability insurance is important. Three out of 10 workers between the ages of 25 and 65 will be out of work for 3 months or longer due to an accident or illness. Almost one in five Americans will become disabled for one year or more before the age of 65. The average duration of a long-term disability is 30 months. The risk of being out of work due to a disability is not something you should ignore.
Yet purchasing disability insurance can be confusing. What do all of the terms mean? Which ones apply to me? Are the extra features worth the extra cost?
If you get disability insurance through your employer, then it’s easy because you probably don’t have a lot of say in what you get. However, if you purchase it on your own, there are a lot of different coverages and riders to choose from. It’s nice that the policy can be personalized to your priorities and your budget, but you first need to understand what it is you’re looking at. Here are some of the more important coverages and riders to be familiar with as you shop for disability insurance.
Own Occupation
Being disabled means you can’t work. But what kind of work? Is it the work that you were doing before the disability occurred? Is it any work that fits your training and education? Is it just any kind of work at all?
Those are questions that are answered in each disability insurance policy. Having “Own Occupation” insurance coverage means that you will receive benefits as long as you cannot complete the duties of your occupation at the time of your claim. With this kind of policy, you could go out and get a job in a different occupation and still receive full benefits from your disability insurance policy. Having this kind of coverage is especially important for those in the medical field, as most disability insurance companies don’t distinguish between different board-certified specialties.
Residual/Partial Disability Rider
When it comes to disability, it isn’t always all-or-nothing. There are many situations where a disability prevents you from working full-time but you can still work part-time in some capacity. A Residual/Partial Disability Rider allows you to receive benefits for a partial disability or ease your way back into work after a total disability. Many disability policies require you to be totally disabled in order to receive benefits, but this rider allows you to receive benefits to supplement your income if you are still able to work part-time. This allows you to benefit from your insurance policy in more scenarios than if you didn’t have the rider.
Catastrophic Rider
A Catastrophic Rider protects you in worst-case scenarios. Most disability policies only pay a portion of your previous income in benefits so that you are incentivized to try to get back to work. With this rider, if you are unable to complete two activities of daily living or have cognitive impairment, you will receive an additional monthly benefit. In a catastrophic disability situation, the likelihood of you being able to return to the workforce or earn as much as you once did is low. Having this coverage increases your monthly benefit closer to your prior income, providing a greater level of security.
Inflation Protection
Inflation decreases purchasing power, meaning your money does not go as far as time goes on. Inflation Protection on a disability insurance policy provides that after one year, your benefit will increase by a set percentage or based on an inflation index. Having a provision that allows your benefit to grow each year helps you keep up with inflation and the cost of living. Otherwise, the true value of your benefit decreases as inflation increases.
As you look through your disability insurance coverage or shop for some, it is important to be aware of these different riders and coverages available to you. Everything mentioned here is really helpful to have but, depending on your occupation, Own Occupation could be invaluable.
At Guide Financial Planning, we do not sell disability insurance or any other kind of insurance. However, we do include an insurance review as a part of our comprehensive financial plans. If you would like an expert to look at your entire financial situation, and not just your disability insurance coverage, then schedule a free introductory call with us today.
About Guide Financial Planning
Guide Financial Planning is led by founder Ben Wacek, who is a Christian fee-only Certified Financial Planner® and Certified Kingdom Advisor®. He has a passion for helping people of all income levels make wise financial decisions and steward their resources from an eternal perspective using Biblical principles. Based in Minneapolis, MN, he works with clients both locally and virtually throughout the country and abroad. You can follow the links to learn more about Guide Financial Planning and our team and the services we offer.