According to the Social Security Administration, a 20-year-old worker has a one in four probability of becoming incapacitated before the age of retirement. Insurance might give significant financial protection against lost income while you are handicapped.
What is a disability income rider?
One alternative is to buy life insurance with a disability income rider. A disability income rider is a life insurance add-on that pays you a monthly payout if you become disabled. Typically, the monthly payout is a certain proportion of your policy’s face value. For example, if you had a $250,000 life insurance policy with a 1% disability income benefit, you could earn $2,500 per month if you match the disability standards set by your insurer.
If you are diagnosed with a qualifying disability, you will usually have a waiting period (also known as an elimination period) before you can claim the disability income benefit. For example, if your policy rider has a 90-day elimination period and you are severely injured in a car accident, you will need to wait 90 days before collecting compensation. Some insurance will only provide benefits for a limited time, such as 24 months.
If you buy a disability income rider, you should understand how your policy defines disability, as the definition varies by insurer and can differ between two plans with the same insurance company. You may be ineligible for this life insurance rider if you work in a high-risk profession such as law enforcement, firefighting, or public utilities.
Stand-alone disability policies are an alternative to life insurance disability income riders. Many employers provide disability insurance as a benefit. You can also buy an individual disability policy if your employer does not provide coverage or if you wish to complement an existing policy.
