When purchasing disability insurance, you may come across various riders designed to enhance your policy. Three of the most common riders that increase your benefits are:
- An Increase Option Rider
- The Cost-of-Living Adjustment Rider
- An Automatic Benefit Increase Rider
These riders provide financial protection tailored to your changing needs as your career progresses. Here, we’ll explain how each rider works, key differences, and why they’re worth considering.
1. Disability Insurance Increase Option
This rider allows you to increase your coverage in the future without undergoing additional medical underwriting. This is crucial for physicians whose income is likely to grow significantly over time.
- How It Works:
- You lock in your insurability at the time of policy purchase.
- Future increases can be made when your income increases (based on your income and group coverage at the time of increase).
- Benefits:
- Protects against the risk of future health changes that could make you uninsurable.
- Matches your coverage to your growing income.
- Considerations:
- Increases must typically be exercised within specific timeframes (e.g., annually or every three years).
- You will need to provide proof of income growth.
Example: If you start your career earning $80,000 and expect to earn $300,000 in a few years, an increase option rider ensures your policy can grow to match your income.
2. Cost-of-Living Adjustment (COLA)
The COLA rider increases your monthly benefit to keep pace with inflation during a disability. This is essential for long-term claims where inflation could erode your purchasing power.
- How It Works:
- Benefits increase annually after you have been on claim for twelve months (not an automatic increase), based on a set percentage (e.g., 3%) or the Consumer Price Index (CPI).
- Benefits:
- Maintains the purchasing power of your benefits over time.
- Provides financial stability in prolonged disability situations.
- Considerations:
- COLA applies only when you are on a claim.
- Carriers generally let you “purchase” your increased benefit once you go back to work or allow the benefit to “reset” to the original amount – Guardian lets you keep it for free as long as the increase is at least $300/mo.
Example: If you’re disabled for 10 years and start with a $5,000 monthly benefit, a 3% COLA ensures your benefit grows to $6,720 per month by the 10th year.
3. Automatic Benefit Increase
The ABI rider boosts your coverage automatically each year, without either requiring proof of income growth or medical underwriting.
- How It Works:
- Your coverage potentially increases by a predetermined percentage (e.g., 4% per year) for a set period, typically during the first few years of the policy.
- Benefits:
- Ensures your coverage keeps pace with expected income growth early in your career.
- No need for additional paperwork or proof of income.
- A little less benefit to purchase later when you are older and do your main increases
- Considerations:
- Typically ends after the specified period.
- Increases are automatic and result in a slight increase in your premium.
Example: Starting with a $5,000 benefit, an ABI with a 4% increase means your benefit grows to $6,083 per month after five years.
Key Differences Between these Disability Insurance Riders
| Feature | Increase Option | Cost-of-Living Adjustment | Automatic Benefit Increase |
| Purpose | Matches coverage to income growth | Adjusts benefits for inflation | Automatically increases coverage annually |
| When It Applies | At specified intervals | During a disability claim | Annually, typically early in the policy |
| Proof of Income Required | Yes | No | No |
| Benefit Increases | Based on income growth | Percentage or CPI-based | Fixed percentage |
| Premium Impact | Increases with added coverage | Slightly higher initial premiums | Increases as benefits grow |
Ask an Experienced Disability Insurance Agent
Download a free copy!
Each insurance carrier has different rules for these riders. To navigate these nuances and select the right options for your needs, consult an experienced disability insurance agent.
Contact us today to schedule a no-obligation quote, policy review, or consultation. Your career deserves the best protection—let us help you make that happen. If you found this article helpful, shoot us an email and let us know!
Email me at michael@moneymeetsmedicine.com or visit our Instagram page @mmm_disability_insurance for even more DI value.
