DISABILITY INSURANCE “RIDERS” OR “BENEFITS” #2

I will be discussing these features in almost alphabetical order. As I discuss them, you will be given my opinion of their relative importance, but each client must assess them based on how important they are to THEM – not to me. I am making these “importance” comments simply to give you a professional base for establishing your own opinion.

1. Automatic Coverage Enhancement: This feature is a complement to the Guaranteed Insurability feature I discussed in the previous blog. There are certain differences:
1. There is no cost for this feature unless the increases are exercised.
2. The increases are automatic and have to be refused if you do not want them.
3. They are guaranteed for the first 3 years of the policy – with no proof of income required for those increases – but FUTURE increases require income justification every 3 years.
4. There is no proof of health required for the first 9 years, but every 9 years you must submit proof of good health in order to qualify for further increases.
5. The increases are an automatic percentage (3% or 5% compounded annually depending on the product).

OK – I have the Guaranteed Insurability rider – why would I use this one? I have the Automatic Coverage Enhancement feature – why do I need the Guaranteed Insurability Rider? Each has its own advantages – and disadvantages. The advantage of the Automatic Coverage Enhancement feature is its automatic nature. We have a tendency with all insurance products to put them in a drawer and only take them out when we need them – which may be many years in the future. We buy based on our needs and budget today – not in 5, 10, 15 or even 20 years down the road, when we submit the claim. The beauty of this feature lies in the fact that we have to refuse the increase. Since the increase in coverage – and cost – is small, we usually accept it. A further point to bring up here: When we purchase a policy, we do not really say “We need (say) $3,000/mth and we are prepared to spend (say) $150/mth to buy it.” We are actually saying “We need this percentage of our income protected and we are prepared to spend this percentage of that income in order to obtain that protection.” What we need to do is adjust the amounts of coverage and protection as time goes by in order to maintain those percentages. It is these features which allow us to freely do that.

The problems with the Automatic Coverage Enhancement feature are the limitations on the increases and the fact that we need to prove health every 9 years in order to continue these increases. What happens if our income goes up faster than this? What happens if our health deteriorates?

The problem with the Guaranteed Insurability feature is that we have to do something in order to benefit from it and it is human nature to “file and forget”. By combining both features, you have the best of both worlds plus you do not pay for increases under either feature unless you request them and there is no “up front” cost for the Automatic Coverage Enhancement feature.

Back soon with what should have been first – Accidental Death and Dismemberment as well as Catch up (not what you pour on food) and Cost of Living Rider