Disability Insurance: Catastrophic Disability Rider

Suffering a catastrophic disability isn’t something you’ll want to dwell on. Still, it’s easy to understand why such a fate may require a disability benefit that pays a higher policy benefit. The catastrophic disability rider is a disability insurance rider that you can add to your base policy if you want to receive an additional benefit should you encounter a catastrophic disability during the policy term.

The catastrophic disability rider is an add-on optional rider that you aren’t required to purchase as part of your long-term disability insurance policy. While a base policy may cover a policyholder’s loss of income, this disability insurance rider typically provides a catastrophic disability benefit to cover the cost of in-home care to help the policyholder with some of the basic activities of daily living. It will likely have the same elimination period and benefit period as the base policy.

Because the benefit amount covered by a catastrophic disability rider is large, the additional premium required for these riders is also high. You might expect to pay an additional $1,000 a year but receive an extra $8,000 a month in disability coverage if you suffer a catastrophic total disability.

What is a catastrophic disability?

A catastrophic disability is commonly defined as being unable to perform at least two activities of daily living by yourself, like bathing, eating, getting dressed, or using the bathroom. It can also include the loss of sight in both eyes, hearing in both ears, or the use of both hands or feet or one hand and one foot. Catastrophic disabilities are often permanent, meaning it’s expected that you will need in-home assistance to help you with those activities.

A catastrophic disability can also cover things like cognitive impairment, so it’s important to discuss with an insurance agent the policy’s definition of disability before you commit to this additional coverage.

There are typically three conditions that would trigger a catastrophic disability benefit:

Presumptive disability (sometimes called an irrecoverable disability), such as the complete loss of:

• Speech
• Sight in both eyes
• Hearing in both ears
• Use of both hands, both feet or one hand and one foot

Being unable to perform two of the six activities of daily living (ADL):

• Bathing
• Dressing
• Eating
• Toileting
• Continence
• Transferring

Severe cognitive impairment, usually measured by medical tests.

Should you purchase a catastrophic disability rider?

As with most disability riders, like the future increase option or the cost of living adjustment, if you haven’t yet purchased the maximum amount of coverage available to you, it probably makes more sense to skip the catastrophic disability rider and simply increase your monthly benefit by purchasing a larger policy.

If you’ve maxed out the coverage available to you, the catastrophic disability rider allows you a way to increase your disability income during the benefit period in the event of a catastrophic disability. You’ll have to decide if the cost of the benefit rider is worth the risk you’re taking off the table.

It might make sense to purchase a catastrophic disability rider if you’re buying a supplemental disability insurance policy and want to add catastrophic disability coverage to your group coverage. Your individual disability insurance policy will be portable, so you can take the catastrophic benefit with you wherever you go.

Ultimately, these decisions are best discussed with an insurance agent specializing in disability insurance. They will be able to review your life insurance, social security benefits, and anything else related to your base policy (like own occupation coverage, future purchase option, partial disability and total disability benefit), to help you understand whether this added expense is worth the benefit you could receive.

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.