So you're finally done with school and are now ready to enter the work force as an educated, motivated and hardworking professional. One of the first things you will either be offered, if your employer provides it, or want to look into on your own is Disability insurance.
Disability insurance is a product used to protect your ability to work and earn an income. If an injury or illness prevents you from being able to work, your Disability insurance coverage will pay you a monthly benefit that is intended to replace a percentage of your regular earnings. Depending on how much a person makes, he/she will normally be able to insure between 50-65% of his/her normal income. When premiums are personally paid, these benefits will be received income tax free. Therefore, in all actuality 50-65% coverage ends up being closer to 80% of a person's after-tax income.
There are many important provisions that you should understand and discuss with your insurance adviser. The quality of your coverage is dependent on provisions such as: the definition of disability, elimination and benefit periods, residual benefits and other optional riders. For the purposes of this article, I will focus on how you can protect your future increased earnings by adding a Guaranteed Increase Rider to your Disability policy.
One of the optional Policy Riders that insurance companies offer is called the Future or Guaranteed Increase Option. Although each insurance company may have its own name for this rider, the concept will always be the same. This rider allows a policy owner to increase their Disability coverage in the future, without requiring any medical underwriting. As your income continues to grow, this rider allows you to increase your protection as well, in order to maintain your benefits proportionate with your income.
Although this may not seem like anything special, medical underwriting for Disability insurance can be exceptionally difficult. Once you have been diagnosed or treated for a medical condition, insurance companies can and often will exclude these conditions from being covered by your policy. Having this rider and executing an option to increase coverage alleviates the possibility of having exclusions, limitations or even a denial of coverage.
As a young, eager professional you should be sure to include the Future/Guaranteed Increase Rider on your Disability policy regardless of what your occupation may be. If you believe that your income will increase over the years, this is the rider that will allow you to protect your future earnings. Be sure to speak with your insurance adviser about this rider before purchasing a policy.