The ability to increase an individual disability policy in the future is very important as they allow you to purchase more insurance without any medical questions or proving insurability.
Are all of these increase options the same? While the options are similar, it is important to read the fine print and work with an experienced broker that can properly compare the differences.
There are two basic types of increase options; a pool of benefits that can be increased and a benefit adjustment rider.
With a pool of options, you may purchase more benefits each year on your policy anniversary by showing that your income has increased. The benefit of this is that you have the option to purchase more each year. Some policies will allow you to purchase a large portion of the pool at one time and others limit the increases by $1000/month each year. It is important to know your policy language.
When you exercise your increase option with this type of option, the company issues a new, separate policy. This can also have a downside:
1) If you are now living in a more expensive state such as California or Florida, this new policy will be more expensive and may have exclusion or limitations such as a mental nervous limitation on the policy. This is true even if you purchased the policy in a less expensive state that had no limitations.
2) The new policy will be issued based on your current occupational class. For example, if you purchase the policy while performing a non surgical medical specialty such as internal medicine or pediatrics and are now working in a more invasive specialty such as invasive cardiology or emergency medicine, the new, additional policy will be more expensive than the original policy. Also, if the company has downgraded your occupational class (some companies downgraded anesthesiologists), your additional policy will issued as such and will be more expensive.
3) If the company has changed their policy provisions, you will only be able to purchase the currently available policy. This can have a downside. For example, some companies instituted a 2 year mental nervous limitation for anesthesiologists and emergency physicians. If your original policy did not have this limitation, your new, increase option policy will be issued with this limitation.
4) If you purchased your original policy at a discounted rate or a unisex rate, the newly issued policy may not be issued at that rate if you are no longer eligible for those benefits by changing employers or no longer a member of the discounted association. This can be especially significant if you are a woman purchasing a unisex rate. The gender specific rate could cost as much as 70% more!
5) The increased policy may have new policy fees.
6) As you increase your policy over the years, you may end up with multiple policies each with different provisions, all with additional policy fees. Some clients have a dozen policies which can be a lot to manage.
The other type of increase option is to adjust the policy. There are pros and cons to this type of policy as well.
The biggest difference is that with this type of option, all discounts and policy provisions are on the policy for the life of the contract. If you move to a different state, change employers or change medical specialties, all of the original policy language and rates will still apply.
The down side of this rider is that the company will request financial information every three years and will make an offer based on your income. You must increase the policy by at least 50% of the offered amount or you will lose the rider. While this may be a downside, it may also encourage you to increase your policy to keep up with your income. With an increase pool, you are not required to increase it. If you decide to never increase the policy, your benefits may not be enough at the time of claim.
For more information, contact Set for Life Insurance today!