Which Riders Should I Choose?

We have been focusing on the sale of individual disability insurance since 1997, helping tens of thousands of clients protect their income. One question that comes up frequently when advising consumers on how to design their coverage is, “What optional riders should I have on my policy?” 

Optional riders can add further value to an already strong core product. They can help make sure that the coverage;

• keeps pace with inflation
   
• protects against partial disabilities
   
• allows the opportunity to buy more coverage without medical questions in the future.

Almost all of our clients included certain optional riders on their policies. The following list shows exactly which riders our current policyholders have chosen to include and what percentage of people chose each one.

The Partial Disability Benefit Rider

The data shown are compiled from sales of individual disability insurance policies to clients from the past decade, accounting for over 31,000 policies sold during that time. As you can see, almost all of our clients chose some form of the Partial Disability Benefit Rider. In our opinion, this is one of the most important features of any policy. Without one of these riders, you would only be eligible for benefits if you are totally disabled.

With the basic or enhanced partial disability benefit rider, your policy can protect you from an illness or injury that doesn't cause a total disability but does limit your ability to work. The basic partial requires a loss of time and/or duties and a 20% loss of income or more. The enhanced partial, on the other hand, provides benefits as long as you suffer a loss of income of 15% or more due to disability. It's worth noting that the enhanced partial can even assist you in recovering from a total disability when you've returned to work full-time but continue to suffer at least a 15% loss of income.

The Cost of Living Adjustment Rider - COLA

Another popular rider is the Cost of Living Adjustment (COLA) rider. In its various forms, it is included in approximately 75% of all policies sold by our firm. The COLA rider adjusts your policy’s monthly benefit annually whether you’re totally or residually disabled, and includes a minimum benefit adjustment of 3% calculated on a compounded basis. This helps people who have a long-term disability from having a decline in purchasing power over time due to inflation. 

Guardian offers three versions of this rider, giving clients a choice as to how they want to protect against the rising cost of living. The most popular COLA rider is the 3% Compound option, which starts increasing benefits after 12 months of total disability each year by 3%. The 4-year delayed COLA rider is a less expensive option, as it doesn’t begin increasing the monthly benefit by 3% annually until after 4 years of disability. Finally, the 6% Maximum COLA is the most expensive option, but it also provides for the highest increase possible-- a 6% increase based on the changes in the Consumer Price Index for Urban Consumers (CPI-U).

The Future Increase Option Rider

The Future Increase Option (FIO) rider is the third most popular option clients chose on their disability policies. This rider allows a client the opportunity to purchase additional coverage each year on the policy’s anniversary, up to and including age 55, with no medical insurability requirement. For example, a client who purchases $5,000 of monthly benefit today with $5,000 of FIO has guaranteed their potential to exercise the increase option for a total of $10,000 per month of coverage regardless of changes in health. They have to document an income that qualifies them for this increased benefit, but they no longer have to worry about changes in health preventing them from increasing their disability protection. 

Buying an IDI policy is an important aspect of financial planning. It’s important to not only get the right amount of coverage, but also to get the right optional riders that add value to the policy, and that meet your needs today and tomorrow.

If you choose to have an optional rider on your policy your premium will increase. 

This optional rider does not necessarily protect against an increase in the cost of living.
 
This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.

Individual disability insurance policy Forms 18ID, 18UD and 18GI underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly-owned stock subsidiary of The Guardian Life Insurance Company of America, New York, NY. Product provisions and availability may vary by state. In New York: These policies provide disability insurance only. They do not provide basic hospital, basic medical or major medical insurance as defined by the New York State Insurance Department. For policy form 18ID, the expected benefit ratio is 50%. For policy forms 18UD, 18GI, 18UD-F, an 18GI-F, the expected benefit ratio is 60%. The expected benefit ratio is the portion of future premiums that the company expects to return as benefits when averaged over all people with these policy forms