Riders on Long-Term Disability Benefits & Your Legal Options
In addition to their basic coverage, disability insurance policies may contain optional features known as riders. In exchange for paying higher premiums, a policyholder can get these additional types of protection. Not everyone will want or need every rider. Some extend much more broadly than others.
One of the most common types of riders on a disability insurance policy is a residual disability rider. This helps protect a person who is not totally disabled, such that they cannot work at all. A residual disability rider provides benefits when someone suffers a partial income loss because they can perform some but not all of the core duties of their occupation, or because they cannot work in their occupation for a certain percentage of the time. Benefits are typically calculated based on the income that a policyholder has lost due to the disability and the benefit that they would receive if they had a total disability. A policy may provide that the policyholder will receive at least a certain percentage of the full benefit for a total disability.
Catastrophic Disability Riders
Another common type of rider covers care for treating a catastrophic injury or illness. These may include:
- Total loss of vision, hearing, or speech
- Total loss of use of both hands, both feet, or one of each
- Severe cognitive impairment
- Inability to do multiple key “activities of daily living” without assistance (roughly defined as eating, dressing, bathing, transferring, toileting, and continence)
Since insurance companies know that these types of disabilities are rare, a consumer generally can add this rider for a low cost. Caps may apply to catastrophic disability benefits, often defined as a multiple of the standard monthly benefit. Some of these riders may provide that a policyholder cannot get more money than their earnings before the disability. The rider would simply make up the difference between the base policy amount and the policyholder’s pre-disability income. Sometimes insurance companies offer these riders only to policyholders who are a certain age.
Cost-of-Living Adjustment Riders
The cost of living regularly increases due to inflation, which means that the expenses of a person with a disability also increase. A cost-of-living adjustment rider addresses this issue by increasing the benefit amount each year once a policyholder has started receiving benefits. These riders may be appealing to relatively young policyholders who may be concerned about a long period of disability. Even though inflation usually increases gradually, it can add up over time to greatly reduce a consumer’s purchasing power.
Future Increase Option Riders
Sometimes called a future purchase option rider, this type of rider allows a policyholder to increase the amount of their coverage at certain times in the future. For example, this option might be exercised once a year, after marriage or the birth of a child, or when a policyholder’s income increases by a certain percentage during a certain time. A future increase option rider may make sense for someone who expects their income to increase substantially as their career progresses. A cap usually applies to the amount of the increase.
Additional Types of Riders
Depending on their situation, a consumer also may want to consider adding one or more of the following types of riders to their policy:
- Presumptive disability rider: this provides for the payment of benefits for certain conditions (such as loss of vision, hearing, or speech, or the loss of use of hands or feet) without waiting through the elimination period, and it obviates the need to undergo further medical examinations to evaluate the continued existence of the impairment
- Retirement protection rider: this provides benefits to replace contributions to a retirement plan
- Non-cancelable feature: this prevents the insurer from changing or canceling the policy for any reason
- Waiver of premium rider: this allows the policyholder to avoid paying premiums on their policy while they are receiving benefits due to a disability
- Return of premium rider: this returns some premiums that a policyholder paid if they eventually cancel their policy
- Survivor benefit: this allows a survivor of the policyholder (often a spouse) to continue receiving payments if the policyholder dies while receiving benefits
These are just some examples of riders that an insurer may offer. When considering whether they want a rider, a consumer should weigh its cost against the likelihood that they will need its benefits.
