Disability Income Rider

Written by Jeff Root

The Disability Income Rider is a very valuable policy feature that you can add to your life insurance contract.

This policy feature provides you with financial protection in the event that a disability takes place. There are a handful of ways in which you can benefit from this protection depending on the insurance company you choose.

How Does a Disability of Income Rider Work?

Most of the time a Disability Income Rider will pay you a monthly income which is 1% of the face value of your death benefit and/or they will waive the monthly premium you have to pay.

Disabilities can negatively impact your quality of life and they are very expensive which is why this level of protection can be very beneficial.

How Can You Get a Disability Income Rider?  

disability income riderThe Disability Income Life Insurance Rider is an additional feature to your life insurance contract.

It is a benefit that you enjoy in addition to your standard death benefit and it can be included as part of your life insurance policy, something pretty typical of whole life insurance policies, or it can be an additional benefit that you pay for out-of-pocket which is more common with term policies or policies with a lower face value.

How Long Does It Last? 

If it is stipulated that part of your Disability Income Rider provide you with the monthly income you can enjoy a steady stream of cash during the time that you are disabled.

The benefit comes in handy if you have a large face amount for your policy.

If, for example, your life insurance policy has a $200,000 face value you could receive $2,000 per month for the duration of the time you are disabled and unable to work.

The income could last until a specified age such as 65, or it could last for the rest of your life. This depends entirely upon the stipulations of your policy.

Who Qualifies? 

Life Insurance With $100,000+ In Coverage

Qualifying for the benefit means having a policy that is typically worth at least $100,000. Each company varies in terms of which whole life insurance policies come with this built into the policy, and which whole life insurance products require you to add it at cost.

In order to receive income from this benefit, you have to add a cost to your policy. The additional cost is going to be much less than what you would have to pay out-of-pocket if you were to be entirely disabled with no source of income.

Permanently Disabled 

In order to file your claim for the Disability Income Rider, your disability has to be permanent.

You have to be unable to return to work. You also have to have been disabled for at least 6 months prior to receiving any of these benefits. Most of the time the insurance companies will require a written document from your doctor certifying your disability or a letter from Social Security granting you Social Security benefits for your disability.

Once they have reviewed these documents the claim will be granted.

Additional Benefits

One thing that you need to know with this benefit is that in addition to the income they provide you with the claim if you have a whole life insurance policy that receives cash value and dividends, it will continue to pay you dividends even if you are receiving income through this benefit.

Your cash value will continue to grow and your dividends can be used to supplement the income from your policy even if contractually you no longer have to pay your premiums.

You are also still allowed to withdraw from your policy from this cash value account or take out a loan against your policy.

Who Is It Best For?

When evaluating whether you need the Disability Income Rider or not, consider what your current disability coverage is.

You might have disability coverage from Social Security, from your employer, or from a Long Term Disability Policy.

If You Were to Become Disabled, How Much Would it Cost You to Get the Coverage You Need?

If you currently do not have enough coverage in the event that you were to become disabled, getting this benefit is going to be lower in price compared to taking out a separate Disability Policy.

Before you take out the Disability Income Rider,  review the rules for canceling this benefit if you no longer have the budget for it or simply don’t want it anymore. Your company might charge you a cancellation fee.

Make sure you understand what the requirements are and whether you receive income or a waiver of premiums or both based on your company.

Pros and Cons

Pros

1. Income Replacement If Permanently Disabled 

The biggest benefit of having a disability income rider on your life insurance policy is the fact that you might have a reliable income from your life insurance policy that does not deduct from your death benefit face value.

In the event that you become disabled having this income could mean the difference between a comfortable life and a strenuous financial situation.

2. Peace Of Mind 

There is peace of mind that comes from purchasing the Disability Income Rider, knowing that your family’s income will be protected in the event of your becoming permanently disabled and unable to work for an income again.

3. Relatively Inexpensive

Considering the amount of income you can replace, and the cost of replacing it, when you do the math out, it is pretty affordable to pay 1% of your annual income to protect your family throughout your working life in the case that you become disabled and unable to work again.

Cons 

1. You May Never Need It Or Be Able to Use It

The biggest drawback to the Disability Income Rider is that you may never need it and it can be an expensive feature to add your policy.

If you decide at some point to cancel it you will probably be charged a hefty fee. Moreover, if your policy has an age limit associated with your ability to receive income or waiver of premiums, were you to become permanently disabled you might face a gap in between accessing retirement funds and taking advantage of the Disability Income Rider.

However, for people who are looking to find financial protection for their families, this is hardly a thought that crosses their mind. The additional cost is far worth the additional protection in our eyes.

How Much Does the Disability Income Rider Cost?

The cost is typically going to be about 1% of your annual income.

The premiums you pay for additional coverage are going to vary based on the company you choose, the face value of the policy, and your age. Other factors to consider include the amounts of your death benefit.

For example of your death benefit is only $100,000 than the 1% monthly income you would receive by utilizing this feature is going to be much less than somebody who has a death benefit worth $500,000.

For that reason, the cost is going to vary significantly between those two examples.

Best Life Insurance Companies

Company A.M. Best Rating
Protective A+
Banner A+
AIG A
Prudential A+
Lincoln Financial A+
North American A+
Phoenix Life B
Principal A+
American National A
Ameritas (FLX Living Benefits Products) A+
Sagicor A-
SBLI A+
Assurity A-
Americo A
John Hancock A+
About Best Life Insurance Companies
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