When starting as a lawyer, you might purchase insurance to protect your earnings. There are many types of insurance that are worth considering buying. One is long-term disability insurance. This type of insurance provides disability income if your own occupation becomes limited by a disability. This may seem like a pretty straightforward idea, but when you buy this insurance, you have to also consider what disability insurance riders you want. Riders are add-on policy benefits you can opt for, typically by paying more. This piece provides an overview of how disability insurance riders work.
Why have disability insurance policy riders?
While disability income insurance, in theory, should provide all of the protection you need for your income, there are a lot of specific considerations that individual policyholders should make. To meet these needs, without having an overly broad policy that is too costly, insurance companies provide riders for people to purchase to gain additional disability insurance benefits. There are a wide array of optional riders. We will cover the most common ones later in this article.
Types of disabilities
There are several types of disabilities. The first is a total permanent disability, which means you are not able to work at all. There is also a catastrophic disability which is a disability that not only can stop you from working, but also from the activities of daily living. There is also a partial disability which prevents you from being able to do the duties of your occupation, but does not stop you from working completely.
How do riders work?
Disability insurance generally pays out a monthly benefit amount to replace your income. In some cases, typically for total disabilities, the disability benefit amount might be a lump sum instead. Regardless, with a benefit rider you will pay more to have additional disability coverage that offers extra protections.
When looking for a long-term disability insurance policy, you should thoroughly review the policy and see what gaps it leaves that you might want to fill through riders. Similarly, you should consider the specific benefits offered by the policy; most will only offer certain aspects of loss of income. Typically riders will be able to provide the additional benefits that the base policy lacks.
Disability insurance usually costs about one to four percent of your annual income. The idea is that you help build up the pool of money based on how much you may need later later in life. The cost of riders will depend on your income and the type of benefit that you are seeking.
It’s probably best to purchase life insurance and disability insurance at the same time. The reason is that in both cases, it is a good idea to purchase them while you are young because you are less likely to run into any underwriting issues, since you will more likely be healthy. Additionally, since both insurances often benefit your future family, it is best to have these things taken care of before you get inundated with all of the responsibilities of having a family.
What are different types of disability insurance riders?
Beyond the various reasons for getting a disability insurance rider, there are several common types of riders. One is a residual disability rider (also known as a partial disability rider). It kicks in when you have a partial or residual disability. Here you may be able to work, but not full-time. Having a residual disability will give you a residual benefit, which is where it covers loss of income from one aspect of your job that you are no longer able to do.
Similarly, you may want to consider a post-pregnancy disability rider. This covers loss of income after you have given birth. This can be from failing to be able to go back to work due to postpartum depression or because you want to take maternity leave. Be sure to check what your policy allows for.
There’s also an unemployment insurance rider. This is so you do not have to make payments towards your policy when you are unemployed, but you can still keep the policy. This is good because it is possible that you become disabled while you are unemployed. It also saves you the hassle of having to restart a policy when you find a job.
Moreover, there’s the future increase option rider (also known as a future purchase option). This concerns your future insurability. If later in life you want to increase your coverage for whatever reason, maybe because you are making more or now have a family, you will not have to go through further medical underwriting. This is advantageous because the older you get, the more medical issues may come up.
A waiver of premium rider is another rider people often get. A waiver of premium rider concerns situations where your injury is so severe, that the insurance will waive the premium you would have to pay. In the instances where you face a severe disability, this could essentially increase your payout because the insurance company will not deduct the premium payment from your payout.
An additional rider is a student loan rider. The total disability benefit would not just pay for your disability related issues, but also your student loan payments.
The retirement protection rider is an optional rider that helps you make contributions to a retirement account like a 401(k) or IRA while you are disabled.
Another rider is a loss of increased earning rider. This provides an additional payout for any increased earnings you might miss out on because of your disability. This is particularly important for attorneys since there can be substantial increases in salary throughout their career.
Furthermore, many seek a cost-of-living adjustment rider (also known as a COLA rider). This will increase your benefit based on cost-of-living increase. The adjustment is based on the consumer price index (CPI), which accounts for inflation. Though inflation is particularly bad during certain times, the reality is that it always exists, so daily costs will inevitably increase over time.
Finally some might opt for an extended accidental disability rider. An extended accidental disability rider allows for more robust coverage than the typical policy gives a holder. This is in the case of an accident that gives you a disability that completely alters your life. The rider helps pay the associated costs. This could be to pay extra medical bills or to pay for someone to help you with everyday tasks. This can also be manifested in a catastrophic disability rider, which specifically states that you will receive money for costs beyond your loss of income, that are related to your disability.
If you did not know anything about disability riders or even disability insurance before reading this article, all of this may seem like a lot. But that is no reason to be worried; taking the process step-by-step can ensure that you get the protection you need.
First, you should consider whether you need disability insurance. While certain insurance may be non-negotiable in terms of life circumstances or due to the law, other forms are ultimately a personal choice. Many of these same considerations will apply to whether you want any riders.
Alternatively, your employer may already offer disability insurance. If they do and you want disability insurance, make sure you are enrolled in it, and if you did not enroll, see if there is an enrollment period. If you have disability insurance through your employer, review the policy and see if the coverage from the insurer is sufficient for your needs. If it is not, you should look at the increased coverage options through your employer insurance and consider whether you need an individual policy that might have either the initial coverage or riders that will suit your needs.
Even if you are fine with your disability insurance coverage, being more knowledgeable about your insurance benefits you for any future emergencies. Any insurance policy will have a benefit period, which is the period of time after the incident that triggers the need for coverage, that you have to file a disability claim for the benefit. Failing to know this could cause you to miss out on crucial financial resources.
Joshua Holt is a licensed insurance agent (License #2785989) and founder of Biglaw Investor and Sidebar Insurance LLC, an insurance agency created by lawyers, for lawyers. His insurance expertise lies in the areas of life and disability insurance, particularly covering lawyers, doctors and other high-income professionals. Prior to Biglaw Investor, Josh practiced private equity mergers & acquisition law for one of the largest law firms in the country.