Disability Insurance: Future Increase Option Rider

Should you pay an insurance company for a rider that allows you to increase your disability insurance monthly benefit in the future?

Key Terms

  • The future purchase option is often used by those just starting their careers, like medical residents, dental students or law students.
  • Having a future increase option rider allows you to purchase additional coverage at a future date, without medical underwriting.
  • The future purchase option rider is also popular among people purchasing a supplemental policy that expect to lose their group coverage in the next five years.

The Future Purchase Option is a disability insurance rider that allows you to increase your disability benefit as your income increases. It’s a way of locking in the ability to expand the monthly benefit of your disability coverage in the future.

The future purchase option is popular among people (such as medical residents, dental students or law students) who can’t afford as much disability insurance as they need today, but who want to guarantee their ability to purchase future coverage at a later date, without having to go through medical underwriting.

If you are a medical resident, dental student, or law student who can’t afford to purchase as much disability coverage as you need today, purchase this rider.

The rider also makes sense for professionals with sufficient group disability coverage at work, but who purchased a portable supplemental disability insurance policy and may want to use the future purchase option at some point to increase their coverage.

For example, imagine that 60% of your income is covered through an adequate work-sponsored disability policy. You then purchase a supplemental disability policy that covers an additional 20% of your income. You anticipate leaving your current employer at some point in the next five years, at which point you will lose your 60% coverage through the work-sponsored policy.

Therefore, you purchase the future purchase option to give yourself the ability to increase your supplemental policy from 20% of your income to 80% of your income without having to undergo a future medical underwriting process.

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What are the different kinds of future purchase options?

The future purchase option goes by many different names, such as the future increase option rider, the benefit increase rider, the benefit purchase rider or the benefit update. Here’s a quick breakdown on the differences in those riders.

Future Increase Option Rider (FIO). The Future Increase Option Rider allows policyholders to purchase additional coverage in the future, at any date. This rider typically comes with an additional cost. The three companies which sell the future increase option rider are Guardian, MassMutual, and Ameritas.

Benefit Increase Rider/Benefit Update. The Benefit Increase Rider allows policyowners to purchase additional coverage every three years, without medical underwriting, to keep pace with income increases. This rider is typically included with for no additional premium.

Benefit Purchase Rider. The Benefit Purchase Rider allows policyholders to purchase additional coverage, without medical underwriting, during certain specific periods. These are typically as follows: (1) when you have had more than a 50% increase in income, such as graduating medical residency, dental school or law school; (2) if you purchased your policy as a supplemental policy because you had a group policy and now no longer have the group policy; or (3) every three years.

Most of these future purchase options last for the first 10 years of the long-term disability insurance policy.

Who should use a future purchase option rider?

If you’re expecting a significant increase in income soon, or planning on ditching your group policy in the next five years, a future purchase option rider makes a lot of sense. Otherwise, you might as well buy a larger policy today.

The future purchase option rider costs money, so by reallocating that money toward a bigger policy, you can buy more protection by purchasing a bigger policy.

Where this logic starts to break down is if you’re currently making $50,000 but expect to make $200,000 in the next few years.

The logic further breaks down if you have health issues that may cause you to be uninsurable in the future since you lock in your medical insurability by purchasing a policy today and increasing your coverage in the future.

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Can I lose the policy benefit from the future purchase option if I don’t use it?

Sometimes the insurance coverage includes the future benefit rider as part of the package offered by the insurance company. In those circumstances, the insurance carrier retains control over when and how the insured uses the rider.

If you didn’t pay for the benefit rider, the insurance company may require you to purchase additional benefits or lose the rider entirely. The policyholder then has to decide whether to let the benefit update lapse or whether to buy additional coverage.

If you choose to purchase additional coverage, you can increase your benefit amount and the disability income you’d receive in a partial disability or total disability situation, but at the cost of obviously increasing your monthly premium. Purchasing additional coverage can make sense if your income has increased and you want to ensure that your monthly benefit keeps pace with your income.

On the other hand, if you let the benefit expire, you will no longer be able to increase your benefit amount without purchasing a new policy. Letting your benefit expire can also make sense if you’re satisfied with your current coverage amount. Many people in a situation of increased income that would justify an increase in their monthly benefit have also started to amass savings and paid off their student loans, which reduces the benefit amount you need.

Where will I find the future purchase option?

Most medical professionals and lawyers are purchasing individual disability insurance policies that contain the standard own occupation provisions, elimination periods, and catastrophic disability insurance coverage. Those policies will ofter come with a variety of disability insurance riders, such as a cost of living adjustment (tied to something like the consumer price index), a guaranteed insurability rider, residual disability rider and the cost of living rider.

These are, of course, in addition to any life insurance policies that the professional already owns.

The future purchase option is one of many riders that you’ll have to navigate as you go through the process of purchasing disability insurance.

Altogether, the decision about these disability insurance riders forms part of your disability plan, which is influenced by your health, the disability insurance quotes you’ve received (and your ability to afford the coverage), and the dependents in your life.

If you’d like help running disability insurance quotes or discussing any disability insurance rider, we’d be happy to help. Our insurance agency was started by two lawyers and exclusively handles high-income professionals.

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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.

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