Riders
Waiver of Premium
- pays the premium should the insured become disabled
- contains an elimination period (waiting period)
- benefit is retroactive
MR. WATSON: Now, you can add a waiver of premium . It is an add-on, an extra "perk". You have to pay extra for it. A waiver of premium, if you recall from the life insurance chapter, is this. You add on and pay for a waiver of premium benefit. And this benefit reads as follows:
If you become disabled, you must continue paying your premiums for a certain period, generally six months (the elimination period). If you're still disabled at the end of that time, the company will return those premiums back to the time you became disabled, and will pay the premiums for you for as long as you remain disabled. If you recover and go back to work, you simply start paying your premiums like you did before you were disabled. So the waiver allows you to not have to make premium payments during your disability, after your waiting period. Make sense?
ALL: Yes.
WOMAN: During your elimination period, you are still paying your premium?
MR. WATSON: Yes, ma'am. Very good. What she said is real important. If you became disabled, you are still paying your premiums during the elimination period, aren't you?
ALL: Yes.
MR. WATSON: Without the waver of premium, even if you are still disabled years down the road you are still paying your premiums, aren't you?
ALL: Yes.
STUDENT: But, if you're still paying your premium after the elimination period, and you're also receiving a benefit, couldn't the company just deduct your premium from the benefit they give you every month and call it even?
MR. WATSON: Yes, but that would be reducing the amount you would be receiving. If you had the waiver of premium benefit, then after the sixth month they would return your premiums back to you and they would start paying the premiums as long as you are disabled. Now, is the disability benefit retroactive?
ALL: No.
MR. WATSON: Is the waiver of premium retroactive?
ALL: Yes.
MR. WATSON: The waiver of premium usually drops off at age 60 or 65, depending on the company.
MAN: Now, would there be any deductibles on that?
MR. WATSON: No. The waiting period (elimination period) is like a deductible. The longer the waiting period the smaller the premium.
Guaranteed insurability
- allows the insured to buy more disability income insurance with-out evidence of insurability
- stated amounts
- specified times
- must pass an earnings test to exercise this option (prove her income has increased)
MR. WATSON: Now, let's talk about something else. There's a girl, she's 30 years old. She's a resident, going to become a pulmonary doctor. She's making $30,000 a year. She's not making much money, but she's working her butt off. Right? If she bought a disability policy right now on that income, she could only qualify for $1,500 a month, basically $18,000 a year. Let's say she develops some kind of anemia, some kind of disease that would preclude her from buying any more disability insurance. But she goes on to graduate, and now she's making $300,000 a year as a pulmonary specialist. Now she becomes disabled, how much is she going to get?
WOMAN: $300,000.
MR. WATSON: Nope, she is going to get the same amount that she always had. $1,500 per month. Based on her earnings when she bought the policy. It does not go up automatically.
MR. WATSON: But, had she purchased what is called a guaranteed insurability rider, as her income goes up, even if she's un-insurable, in bad health, the company will allow her to buy more disability income insurance. It's contingent upon her meeting an "earnings test". Based on proof of earnings. Keeps her from over-insuring. You understand?
WOMAN: Kind of, but I don't quite get how she could buy this extra rider that would make it rise with her income.
MR. WATSON: That's the guaranteed insurability rider. You add this on when you buy the policy. It protects her ability to buy more insurance later, regardless of her health. As her income goes up, even if she is un-insurable, she can buy more disability income insurance, as long as she is not disabled. What if she's un-insurable later, but still earning income as a pulmonary doctor. Can she buy more? Yes. As long as she is not disabled.
WOMAN: I like it.
MR. WATSON: Wow! She purchased this as a rider when she first bought the policy.
Cost of Living Rider
MR. WATSON: This rider will automatically increase the benefit amount on the anniversary date of the policy to keep up with inflation. Usually tied to the consumer price index. If the cost of living rises by 4% (example only) the benefit would increase by the same 4%.