Nearly every life insurance policy available comes with several optional riders marketed as a way to customize your coverage for specific needs.

Many life insurance riders are designed to offer “living benefits” to make buying a policy more advantageous. That way, a policy owner doesn’t necessarily have to pass away in order to benefit from the policy.

Two types of disability riders in life insurance

A common life insurance rider is a disability rider, which come in two main types:

  1. Disability income. This type of rider will pay a monthly benefit to an insured person who suffers a disability that affects their ability to work and earn an income.
  2. Waiver of premium. This rider enables the insured to keep their life insurance coverage intact without paying premiums if they suffer a disability that affects their ability to earn a living. Keep in mind this type of benefit does not provide income or benefit payments; it only waives your insurance premium obligation.

Is a disability rider worth adding?

Disability riders usually cost extra above what you would pay for your base life insurance coverage. The amount will depend on several factors, including how much life insurance you’re buying, as well as the standard underwriting factors such as age, health and occupation. You can plan to spend an additional 10 to 15 percent above your base policy premium on a disability rider.

It’s not a bad idea to tack on a disability rider to your life insurance policy if one is available. You can obtain a little extra coverage for a little added cost.

But you shouldn’t consider a disability rider as a complete replacement for a separate individual long-term disability policy. Life insurance disability riders are not designed to provide the comprehensive coverage that a standalone disability insurance policy can provide.

Don’t solely rely on life insurance for disability coverage

Here are three ways that a life insurance rider limits your coverage for disability:

  1. Life insurance disability riders pay much less in benefits than individual disability policies.

Whereas individual disability insurance policies pay benefits based in large part on the income of the insured, disability benefits from a life insurance policy are based on a percentage of the policy’s face amount, or death benefit.

Typically, a monthly disability insurance benefit from a life insurance policy will be 1 percent of the policy’s face amount. So if you have a $200,000 life insurance policy, the disability insurance rider will pay you $2,000 a month (200,000 x 1%).

And most insurers place a maximum on what a disability rider will pay out, which is far less than what your physicians disability insurance policy can provide.

  1. Disability riders on life insurance policies have stricter limits on how long you can receive benefits.

While long-term disability policies often pay benefits to age 65 or even beyond, disability riders on term life insurance policies may only pay benefits for a limited period, even as little as two years. If you have have a disability that keeps you out of work longer than two years, you will have to find income from another source.

  1. A life insurance rider may have a stricter definition of disability.
    Many companies that offer this rider may only pay benefits if the disability is permanent, and most won’t consider residual disability claims.

Many physician disability insurance policies, on the other hand, will pay a percentage of your base monthly benefit if you can still work, but have suffered a disability that limits how much you can do and, thus, adversely affects your income.

Ways you can afford both types of insurance

People who rely solely on disability income riders from their life insurance policies typically do so because they cannot afford the premiums on a standalone disability insurance policy. As a physician, you should have the resources to purchase both types of insurance. However, if you find that buying both a life insurance and disability insurance policy is stretching your budget, there are ways to save on the cost.

Work with an independent agent who represents multiple carriers. These agents can find the best coverage from the lowest cost because they have access to a wider variety of policies than a captive agent who represents only one insurance policy.

Avoid unnecessary riders. Both types of policies include full menus of optional riders than can quickly add to the cost. Don’t be pressured by your sales agent, who’s working on commission, to add unnecessary riders to your policies. Buy only what you need.

Get future increase options. Both life insurance policies and disability policies often come with future increase options. This feature enables you to buy a certain amount of coverage right away with the ability to increase your coverage amount later on without additional underwriting. As your income grows, you can fit more insurance coverage into your budget.

Still not sold on disability insurance? Check out:
The Ultimate Guide to Physician Disability Insurance in 2019