Disability insurance is designed to replace a major portion of your income if you are unable to work due to injury or illness. The amount of coverage and the monthly benefits you can receive are based on your income at the time of policy issue.
Chances are, the longer you own the policy, the more that income is going to increase. If you receive an average annual raise of 5 percent, your income will double in about 15 years. And if you buy a policy as a resident, you will certainly have a larger salary once you’re established in your practice.
So should you wait until you’ve practiced medicine several years before buying disability insurance? No, because you don’t want to take the risk of suffering an illness or injury without coverage.
Will you have to replace your policy several times to account for your higher income and go through underwriting each time? Not necessarily. That's the beauty of the future increase option (also called future purchase option).
A future increase option allows you to increase your coverage at future dates
The solution is to make sure your disability insurance policy includes a future purchase option. This option may also be referred to as a future increase option, a future insurability option, a benefit update rider, or a similar name.
This feature, whether provided as an optional rider for additional cost or as part of the base policy, enables a policyholder to increase the amount of coverage at a future date without having to undergo additional underwriting. The added coverage will increase your premium, if you elect to exercise the option.
Do I need a future increase option rider?
A future purchase option is a critical component if you’re purchasing disability insurance while still a resident or fellow, as your benefits will be capped based on the income at the time of purchase. Once you're out of residency, you will want the option to increase your disability insurance coverage.
A future benefit increase is typically triggered by an increase of income. Insurers often enable the policy holder to bump up their coverage after a certain number of years. Some provisions allow you to increase coverage due to a loss of group coverage or after a major life event.
Which insurance companies have a future increase option?
Ameritas has a future increase option rider that enables you to apply for a monthly benefit increase on each policy anniversary through age 55. The maximum annual increase allowed is the lesser of one half of the base monthly benefit originally issued or the amount for which you qualified based on your earnings at the time you apply for the increase.
Guardian’s future increase option is available as a rider for additional premium. It enables the policyholder to increase coverage amounts annually to age 55. You can exercise the option before a policy anniversary if you lose group disability coverage.
You can elect a maximum of two times the base benefit plus in-force coverage; medical/dental residents and first-year physicians and dentists can elect three times the base benefit. You can exercise up to the full amount available up to age 45. From ages 45 to 55, you can exercise up to one third of the original amount.
MassMutual enables policyholders to purchase additional coverage annually to age 60. You can also exercise the option after a major life event, such as marriage or brith of a child. The maximum increase is three times the base policy amount, up to $10,000, to age 50. From age 50 to 60, you can increase coverage by half those amounts.
Ohio National’s guarantee of physical insurability rider has annual options to age 60 and special option date if GLTD coverage terminates or you have a 50 percent increase in monthly earning.
Principal has a benefit update rider available for no additional premium. It enables the insured to increase policy benefits every three years up to maximum limits and up to age 55. You can also elect additional coverage before the three-year window if you have a loss or reduction in your group long-term disability plan, or if your income increases at least 50 percent.
Standard offers a benefit increase rider. Once in any three consecutive year period, you can apply for this option if you are 50 or younger. To be eligible, either your earnings have increased at least 30 percent since the last option date or you no longer have access to an employer’s long-term disability insurance plan.
That was just a brief lesson. Master income protection here:
The Ultimate Guide to Physician Disability Insurance in 2019