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Do You Have the Right Disability Insurance?


Disability insurance is critical to making sure you’re covered in case an accident or serious illness keeps you from working for an extended time.  But, do you have enough of the right coverage and is it enough?

Depending on your income and how your policy is written, standard disability insurance can leave coverage gaps that could cost you thousands of dollars. While most disability policies will replace about 60% of your income if you can’t work, policies vary

  • in how they define disability,
  • whether the benefit increases with time and
  • how long the policy lasts.

Here are three disability insurance riders to consider that can help secure your financial future

Cost of living adjustment (COLA)

Inflation will increase but your disability benefit won’t unless you’ve got a rider. It will add to the cost of the policy but it protects your benefit from decreasing in the future. Cost of living adjustment riders are available in two varieties:

  • flat rate increases of a few percent each year or
  • linked to the Consumer Price Index.

Keep in mind that the value of the rider increases the longer the policyholder draws disability benefits. So a cost-of-living adjustment makes more sense for a 20-year-old worker who has more time left in the workforce than a 60-year-old employee.

Own occupation

A standard disability policy provides coverage if you can’t return to any job. That means a surgeon who can’t perform surgery but can serve coffee at a diner isn’t eligible for benefits, despite the $100,000-plus salary reduction he or she might take. An own-occupation rider provides coverage if you can’t return to your job. Designed for workers in specialized jobs, own-occupation riders provide coverage specific to your profession. As with other riders, this can cost anywhere from 2 to 20% of your premium.

Lifetime extension

A basic disability policy will pay a benefit to age 65. If you reached age 65, even if you were still disabled, the benefits will end. The lifetime extension says that if you become disabled at some point, usually before age 45, and if you are still disabled through age 65, then the benefit is extended through your lifetime or until you recover.