A very important rider

Typically, as a young physician or dentist, you will want to secure individual disability coverage to lock in your health.  We often meet our clients as residents or fellows and discuss the importance of properly designing a quality disability policy.  The disability marketplace is constantly changing and as advisors we must stay current on the many changes among the carriers.  One of our focal points for securing coverage while in training is a special rider that allows a policyowner to increase coverage as income rises in the future without needing a medical exam at that time.  The usual requirements to exercise this rider are a short application and income documentation (typically current paystub will suffice).  Using this rider we can secure a minimal base benefit, typically for a client in training, but secure the maximum increase under this agreement to essentially lock in one’s health.  The great part of this agreement is that if a client becomes uninsurable or unhealthy, we don’t have to worry about it; we can still increase coverage under this rider with only income documentation.  This rider differs among the carriers, but will generally fall within two categories, which will examine in the next section.

• Future Purchase/Insurability/Increase Option

This option acts as a pool of benefit where the policyowner can exercise any amount up to a stated limit.For example, if you have a $10,000/month Future Increase Option, you will be able exercise up to the $10,000/month as long as your current income and any disability coverage allows for the increase.This rider comes at an additional cost that is added to the base policy.As an individual increases monthly benefit, his/her total premium will increase as well.Typically, policyholders will receive annual letters discussing this benefit and your advisor should review coverage every year. We often exercise this rider when a client finishes training and receives a significant increase in income as an Attending Physician (most carriers offer off-anniversary increases).In today’s marketplace, most carriers will offer total monthly benefits (base coverage and the Future Increase Rider) of between $15,000/month and $17,000/month – roughly protecting incomes between $350,000/year to $400,000/year.Residents and fellows can typically secure $5,000/month in training, so we will usually layer an additional $10,000/month - $12,000/month as a Future Increase Rider.Of course this depends on medical/dental specialty and potential income, so we will adjust based on assumptions and projections of future income and lifestyle.

• Benefit Increase/Update Option

Currently a couple of the major disability carriers offer an option that does not contain a stated dollar figure for future benefit increases.This rider is eligible for increase every 3 years, where a policyowner can increase coverage if income has risen.The same requirements are needed as the Future Increase Rider (application and income documentation) and allow an individual to increase coverage without medical underwriting.Every three years a policyowner is able to increase his/her monthly benefits up to the insurance carrier’s issue and participation limits – currently around $15,000/month - $17,000/month.Please note, these limits can and most likely will change in the future, which could be a positive or negative for the policyowner.This rider is often a no-cost agreement built into the policy, which often leads to premium savings compared to the Future Increase Option, which adds additional premium cost.Letters will also be sent out, every three years, and it is important to respond with income and disability coverage documentation otherwise the insurance company will remove the Benefit Update Option from the policy.As a result, it is important you speak with your advisor every year to review coverage.

These riders are often the subject of confusion and we are happy to discuss your options.If you are a younger physician or dentist, this rider is probably the most important feature of your disability policy.Lock in your health now as we can never predict the future.

Written by:  Jeffrey Marsico, CLU & David Marsico