No one plans on becoming disabled, but that doesn’t stop it from happening to people every single day. If you work in the medical field, you probably know this unfortunate truth all too well. Disability income riders help those who become disabled replace some of their lost income.
A disability income rider is an optional add-on to your life insurance policy that helps cover the cost of your lost income if you become disabled. Often, adding this rider to your policy will increase your monthly premium, but the added cost could be worth the payout should you become disabled. It is important to note that the terms of a disability income rider will vary based on the company your policy is through. To find out the specific benefits that are offered by your life insurance company, consult with your agent.
With that said, most disability income riders require your disability to be permanent, as defined by your policy terms, in order to qualify for the benefits payout. Typically, permanent disability is defined as an injury or condition that makes you unable to work and is so severe that you will likely not recover.
To begin putting your disability income rider to work, you will need to file a claim with your life insurance company. To do so, you will want to begin by contacting your agent and providing them with evidence that proves your disability. This could include test results, treatment notes, a written statement from an attending physician, and more. Once your claim is approved, you will begin receiving monthly payouts consisting of a portion of your death benefits.
How much does the disability income rider payout?
Once your claim is approved, your insurer will pay out a monthly stipend equal to a small percentage of your policy. For example, if your life insurance policy is worth $100,000 and your rider defines the payout as 1% of your policy, you will receive a monthly stipend of $2,000.
Are there any additional benefits to a disability income rider?
Depending on the terms of your rider, you may be entitled to a “waiver of premium”. If so, you won’t be required to continue paying your premium should you become disabled. If your life insurance company does not include a waiver of premium in your disability income rider, you may need to add it to your policy as an additional rider. Depending on your policy and insurer, this additional rider may come with a waiting period before it can be used.
Disability income riders are important because they help lessen the financial burden should you become disabled and are unable to work. This is especially important for those with single-income households or a heavy debt burden. Since those in the medical field, especially physicians, have the potential of making large salaries, losing this income could leave their family financially devastated, especially if they aren’t done paying off their student loans.
To decide whether or not you need a disability income rider, you will want to take into account the full picture of what your finances would look like if you were to lose your income and become disabled. From there, you can decide if the additional cost of the rider is worth it to you. Because everyone’s tolerance for risk and financial health are different, it is a decision that you will need to make for yourself. Here are a few things that you should consider while making your decision:
- Who would be financially affected in the event that you become disabled - If you become disabled, who will be relying on your income? If you are single and willing to take the risk of not including a disability income rider in your policy, that might be okay. If you have a family, the thought of not being able to support them financially could be reason enough to include the rider in your life insurance policy.
- Your existing disability coverage - If you already have disability insurance, such as a policy through your employer, adding a disability income rider could be redundant. Before you commit to paying the extra premium, make sure that you have a clear picture of your current disability insurance policies and how far they stretch.
- Whether or not you can afford the cost - Adding a disability income rider can increase your premium. If your budget is tight, the benefits offered by your premium might not outweigh the cost.
- If your assets will cover your income - If you have significant assets, you may be able to more easily cover lost income due to a disability. If this is you, you will want to ensure that you have a solid plan in place for liquifying your assets should you become unable to work.
Will a disability income rider benefit cover the entirety of my lost income?
No, disability income riders are not likely to pay out the total amount of income that you lose due to disability. Instead, it is designed to help you have some income when you are unable to continue working. The higher your policy amount, the more that you will be paid out should you need to claim the benefit.
When can I purchase a disability income rider?
Disability income riders should be purchased at the time that the policy is issued. If you already have a policy, you will need to contact your agent to find out if you can add this rider to your existing policy.
Is a disability income rider the same as disability insurance?
No, disability income riders and disability insurance are not the same. Disability insurance provides much more comprehensive benefits to its policyholders than a disability income rider on your life insurance policy typically does. If you are unsure if you need both policies, you should check with a trusted insurance agent.
Micah believes financial literacy is the key to building lasting wealth, security, and the ability to make life-changing financial decisions with confidence. For his own website and others, Micah writes thoughtful personal finance content that makes a positive impact in readers' lives. You can find his past work on Micah Murray Freelance and Money Under 30.