Principal Financial Group’s individual disability policy offers a benefit update rider on their policies. This rider is sometimes confusing to clients so here is a primer to clarify how it works:
The benefit update rider is a no-cost rider available on individual disability policies when you purchase 75% or more of the eligible amount of benefit. This means that if you are eligible to purchase up to $10,000/month initially, you must purchase at least $7500/month on the initial policy in order to have the benefit update (BU) rider on your policy.
The benefit update rider allows you to increase your policy in the future without any medical questions. Financial verification is required. If you have a policy with discounted rates, the increase will be at the discounted rate, even if you have changed employers. The Principal policy is an adjustable contract so when you increase your coverage, you will receive an amendment to the original policy and the original policy and new benefit will blend into one policy.
Once the benefit update rider is on the policy, it allows you to increase your benefits in several ways.
The first way it allows you to increase your coverage is if you have a 50% or more increase in income over the previous year. This is especially helpful for medical residents, dental students and veterinary students who have graduated and have had a large jump in income. At the time of the increased income, you would only need to submit financial verification and your policy can be adjusted to your new income accordingly.
The second way you may increase your policy with the benefit update rider is if you lose your group disability insurance benefits. If you purchased your policy as a supplemental policy where you had a group policy, you may increase your policy if you change your employer where they don’t have group benefits or if your employer dropped the group benefits. This would be a triggering event that would allow you to increase your coverage.
The third way to increase your benefits under the benefit update rider occurs every 3 years. The company will automatically send you a letter requesting you to complete the benefit update form and return to the company with your financial information (salary, income, etc…). They will then assess whether or not you are eligible to increase your benefits. If you are eligible, they will make an offer based on your current income and group disability benefits in force. In addition to the offer, they will also show a 50% offer (50% of the full offer). You must accept at least the 50% offer in order to keep the benefit update rider on the policy. If you choose to not accept the offer, the rider is removed from the policy. As such, any future increases will be subject to medical underwriting.
So is the benefit update rider beneficial? Based on 21+ years of experience, it is very beneficial to have on the policy. We have seen a lot of clients with other policies that have pools of increase options that are never exercised. When a claim occurs, they are grossly underinsured. Having the benefit update rider motivates people to keep their policy up to date with their income.
Another benefit of the benefit update rider is that it will allow you to increase it up to the maximum available limits regardless of the original base benefit. Most companies will only offer a multiple of the base policy in increase options. For example, if you purchase an individual policy of $1000/month while in medical school (minimum size policy to protect insurability while keeping costs low), most companies would only allow you up to $3000/month of future increases. This means that if you wanted more than $4000/month benefit, you would need to qualify for it medically. With the benefit update rider, you may start with a $1000/month policy and still be able to increase it up to $15,000/month (or more if the limits increase). This can be a substantial advantage.
For more information about Principal’s benefit update rider or to request a personalized individual disability insurance quote comparison, contact Set for Life Insurance today!