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Disability Income Rider: When buying a life insurance policy, a disability income rider can be an excellent addition for a policy owner. A disability income rider offers financial security to the individual who owns a life insurance contract in the event of a disability taking place.

Nobody ever wants to think that they will become disabled, but it can, and does, happen to hundreds of people every year for one reason or another. A major concern for many people is loss of income, and this unfortunately happens a lot when someone becomes sick, injured or otherwise physically disabled. After all, life doesn’t stop when you do. However, this doesn’t mean that you and your family need to fall behind.

Life insurance is primarily there to protect your loved ones when you die, but when you become disabled and are unable to work, both you and them can become equally disadvantaged financially. Having a disability income rider on your policy will help you maintain your coverage even if something should happen to you that prevents you from maintaining your standard of living while you are still alive.

Disability Income Rider

Generally, 1% of the life insurance contract’s face value will be paid each month by a disability income rider. Another way the disability income rider may pay is that the life insurance contract’s monthly premiums may be waived. A disability is costly, inhibits the quality of life, and is cumbersome. In the event of a disability happening, this rider provides a piece of security can make a troublesome period better. 

Monthly Disability Income Rider Option on Term Life Insurance

Life insurance coverage is usually bought with the purpose of giving funds to your loved ones if your life were to end. A life insurance policy’s tax-free death benefit can offer your loved ones finances to maintain their style of living.

Can you receive an income from life insurance coverage while you’re alive, as opposed to your family receiving it when you pass away? Yes. Life insurance coverage has evolved with thanks to the disability income rider and other unique policy riders.

Life Insurance Rider Definition

Life insurance riders are an add on to a policy. They may provide an uncommon exclusion, stipulation, or another benefit on a life insurance contract. Many riders are a benefit to complement the regular death benefit of the contract that is either an aspect of the life insurance policy, or is an extra benefit that the contract owner is financially responsible for. Common rider examples are the accelerated death benefit rider, the waiver of premium rider, the guaranteed insurability rider, and the disability income rider.

Monthly Income

If your disability income rider includes this stipulation, you’ll receive monthly revenue at a time when you need it most. This can be quite a large benefit if the policy’s face amount is big.  By having a disability income rider on your policy, you are protected. With this, you receive a monthly income (or just a waiver of premium as seen in the next section) as long as you meet the requirements for disability in your policy. This income is often 1 percent of the policy’s value—someone with a $250,000 policy would receive $2,500. Depending on your policy’s terms, you may have to be disabled for a certain period of time before you are able to request your disability income.

This source of revenue might last as long as the insured remains alive, or until a certain age, based on the policy’s specific stipulations.

Obtaining income from the disability income rider will raise the cost of a policy, but the benefit tends to outweigh the additional costs. Although the higher rate is still cheaper than the actual life insurance fees for the policy, it is prudent to comprehend these additional expenses before adding them. At times, this might be a cheaper way to go than buying an individual disability policy, and other times it might be costlier. We regularly suggest to clients that they contrast every option thoroughly prior to making a buying choice.

Waiver of Premium

Much like an individual life insurance rider called a “waiver of premium rider”, the disability income rider will usually wave insurance premium charges in the future. This can potentially make an individual waiver of premium rider redundant and unnecessary for a policy if a disability income rider is currently attached to it. In association with the disability income rider, the premiums may be waived until the person insured reaches a specific age, or for the lifetime of that person as per the language of the policy. The duration of the waiver might also be impacted by how old a person is when they have a disability.

A “waiver of premium” is worth getting on your policy as well, as it goes hand in hand with the disability income rider. This allows you to stop paying your premium rates should you become disabled. This rider stipulates that you will not be required to keep paying your premiums once you have been disabled for a certain period of time and are unable to work. When you are later able to return to work full-time, only then will you be required to begin paying your premiums again.

Disability Has to be Long Term

For the disability income rider claim to be filed, the disability has to qualify as a long-term disability, preventing the insured individual from working again. Further, for the sake of being eligible for the benefit, the insured individual has to be disabled for at least half a year before they can obtain any waiver of premium or revenue. Generally, the life insurance company will ask for a medical physician’s written document validating the disability and when it took place. It may also ask for social security letter allowing the benefit to be granted. Upon assessing the documents, if all the paperwork is in order, the company will approve the claim.

Dividends and Cash Value Keep Going

A vital aspect of the disability income rider is that, besides the revenue offered by the claim, if you have a whole life insurance policy, you will keep receiving dividends. Additionally, the cash value keeps growing at the specified minimums. The ongoing dividend payments can add to your revenue via the policy. This aspect can be priceless if there are large dividend payments.

Owners are still permitted to obtain withdrawals and loans from the policy as well.

Is the Rider Necessary?

When determining if you require a disability income rider, figure out what your existing disability coverage includes (via your workplace, social security, and all long-term disability policies), the amount you will require if you were to get disabled, and how much it will cost. If the extra coverage you can get via the disability income rider is not as high in comparison to the rate of an individual disability policy, it might be a worthwhile rider to supplement your policy.

Prior to adding the rider, understand the rules about rider cancelations (if your requirements or budget is modified and you don’t need to pay for it anymore). At times it can just be canceled for a cost, and other times there aren’t any fees associated with cancelation. Ensure that this is known prior to taking out a policy. Sometimes, this rider can only be supplemented when the policy is initially approved and issues. Keep this in mind when buying a life insurance policy.

Effect on Income

Since you are not able to work as you usually do, your income should already be severely reduced. The money released to you when you use your disability income rider is meant to be a reasonable replacement for that lost income and may be subject to income tax. However, this tax is usually not applicable as long as the premium is paid.

It should also be noted that accepting this rider could also have an effect on any Medicare or social security payments you may receive (either your insurance benefits or your Medicaid/social security could be reduced to accommodate the other).

Everyone Should Consider It

Though it may seem like just another insurance company ploy to suck money out of you, the truth is that your risk of becoming disabled before you reach retirement age is a lot higher than you may think it is. In fact, Studies show that the average 20-year-old worker of today has a 1-in-4 chance of becoming disabled before they reach their late 60s (retirement age). Getting a disability income rider on your policy is cheap compared to what a total loss of income could cost you, and it keeps both you and your family members protected.

We are prepared to answer all of your questions about disability income riders, and we will work to find you the best rates possible.

Ready to take the next step? Contact us today by calling at 888-411-1329, or fill out our quote form on this page. We look forward to helping you.

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Michael Quinn

Michael Quinn is the owner of Life Insurance Blog. If you have specific questions or face challenges getting coverage. Please email or call me a call at 888-411-1329 - Either way, I'm happy to help you.

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