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* Inflation Protection
Suppose you are receiving a $6,000 monthly benefit. At 6%
inflation, that benefit will be paying only $1,872 worth of bills at the end of
20 years. Therefore, one of the most important aspects of your disability income
plan should be the protection it affords against inflation.
Individual disability income policies generally offer a cost of living rider
that will adjust benefits for inflation during a long-term claim. Most of these
riders tie adjustments to increases in the Consumer Price Index, thought all of
them "cap" the maximum increase at some percentage, such as 4% per
year.
Some policies put a ceiling on the maximum benefit that can be
paid under the cost of living rider. A common ceiling would be to stipulate that
once the original benefit has doubled, no more increases in the benefit amount
would be made, regardless of the continuing effects of inflation. The best
policies, of course, have no such ceiling; benefits will be increased as long as
the Consumer Price Index warrants it.
** Future Insurability
As your income increases over the years, due both to career
growth and inflation, the amount of coverage you originally purchased may become
inadequate. The solution, of course, is to purchase more coverage. But what if
your health has deteriorated or other changes in your circumstances make it more
difficult or even impossible to obtain additional coverage?
A future increase option is the answer. As long as your
increased income qualifies for more coverage under the company's issue limits,
the future increase option guarantees your right to purchase additional coverage
up to a stated age without evidence of insurability. Under the best policies,
you can even exercise a future increase option while disabled. The increase in
coverage will take effect immediately, subject to the elimination period.
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