Question

Identify the optional benefits that can be added to a disability-income policy.

Answer 1

Rehabilitation Benefit

A disability may prevent an individual from returning to his or her normal occupation but not from working at some other type of job. The Rehabilitation Benefit facilitates vocational training to prepare the insured for a new activity. This benefit applies when the insured is totally disabled and receiving benefit payments. If the insured chooses to participate in a vocational rehabilitation program approved by the insurer, then total disability benefits will continue as long as the insured actively participates in the training program and remains totally disabled.

Future Increase Option

Also known as the Guaranteed Insurability Option or Guaranteed Purchase Option, this selection allows the insured to purchase additional disability income protection, regardless of his or her insurability, at specified future dates. The rate for this additional coverage is determined by the insured's attained age at the time of purchase, not the age when the policy was originally issued.The insured will only be able to purchase a specified predetermined amount of disability income insurance at each option date. To guard against overinsurance, the insurer will usually limit the amount of additional coverage to perhaps $500 or less on each option date. Also, the number of option dates on which the insured may purchase additional coverage is limited. Usually, the option dates will be every two or three years from ages 25 to 40, or possibly to age 50. These dates may be arbitrarily selected by the insurer or they may coincide with the insured's birthday, marriage, or birth of children.

Cost of Living Benefit

The purchasing power of fixed disability benefits can be eroded due to inflation and increases in the cost of living. To protect against such situations, most insurers offer an optional Cost of Living Benefit. Under the provisions of this option, the insured's monthly disability benefit will be automatically increased once the insured is on claim (receiving disability income benefits). Typically, this increase occurs after the insured is on claim for twelve months, with subsequent increases each twelve-month period thereafter as long as the insured continues to receive benefits.

Lifetime Benefits

The Lifetime Benefits option extends the insured's benefit period from age 65 to lifetime. This extension may apply to accident-only benefits or to accident and sickness benefits. Normally, if the total disability is due to an accident which occurs prior to age 65, benefits will be paid for the lifetime of the insured, provided that he or she remains totally disabled.

Most insurance companies place some form of time limitation on the lifetime sickness benefit. Typically, the disabling sickness must begin prior to a specified age - such as 50, 55 or 60. A policy providing lifetime sickness benefits usually also stipulates that if the sickness begins at age 55 or earlier, 100% of the total disability benefit will be provided for the lifetime of the insured. However, if the disability begins after age 55 but before age 65, a reduced benefit will be paid for life. Here's an example of how such a policy might typically be structured:

"If total disability, due to sickness, begins at age 55 or earlier, total disability benefits will be paid for the lifetime of the insured. If total disability benefits begin at age:

• 56 - Total benefits are paid to age 65; then 90% of the benefit for the lifetime of the insured.
• 57 - Total benefits are paid to age 65; then 80% of the benefit for the lifetime of the insured."

…and so on.

The progression of benefits would continue in this manner until age 65. If the total disability began at age 65 (normally the policy is not renewed past that age), then the payment of total disability benefits would be limited to one or two years.