As a medical professional, you see first-hand how life can change instantly, and bills pile up. Individual disability insurance can fill in these gaps, but there are nuances and added benefits that may offer even better protection for certain circumstances.
A Future Increase Option Rider (FIO) is a feature of your life insurance or disability coverage that allows you to increase coverage without medical exams or health questions.
In this article, we’ll explore the future increase option rider applications and how it fits into your long-term disability insurance policy, so you can decide if you should purchase this additional coverage.
What is a Future Increase Option Rider?
A Future Increase Option Rider, also known as a Guaranteed Insurability Rider or Future Purchase Option Rider, is a provision within a disability or life insurance policy that gives the policyholder the right to purchase additional coverage without worrying about their future insurability.
The policyholder can exercise this option without providing evidence of insurability. Evidence of insurability may require undergoing a medical exam or answering health-related questions. Many pre-existing conditions may disqualify you from insurance, so being proactive is important.
Purchasing a policy and adding a future increase option rider while you’re young and healthy can result in better protection as you age, especially if you have a non-cancelable or guaranteed renewable policy.
By adding this rider to your disability policy, you can increase your coverage amount to prepare for any unexpected health events or lifestyle changes.
A Future Increase Option Rider can be particularly valuable if you anticipate significant life events like getting married, starting a family, or taking on a mortgage because it increases your safety net when others depend on your income. It’s also a great option for business owners and private practice operators.
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How Does a Future Increase Option Rider Work?
The policyholder must meet certain criteria to be eligible for a future increase option rider. These requirements can vary depending on your insurance company and specific policy.
It’s important to review the terms and conditions outlined in your policy to ensure eligibility.
A broker can walk you through various disability plans, explaining the policy benefits, add-on options, and any important disclosures you may need to consider.
Understanding your disability coverage is the key to protecting your future self and loved ones when the unexpected happens, because not all policies are created equally.
Right to Increase Coverage
With a future increase option rider, the policyholder has the right to increase their coverage in the future without the need for additional medical underwriting.
In other words, future insurability isn’t a factor in the right to increase coverage.
Even if there are changes to your health, you can still secure additional coverage without worrying about being denied or facing higher premiums.
There may be premium adjustments or additional costs if you decide to exercise your right to increase coverage.
The cost implications will depend on factors like the amount of added coverage and the policyholder’s age.
A future increase option rider can benefit individuals who want to secure insurance coverage as their income grows.
By obtaining this rider early on, while you’re younger and potentially healthier, you can protect your ability to increase coverage without worrying about the financial implications of future health changes.
In general, FIO riders are relatively affordable. You can expect to pay roughly 2% of your policy’s total cost when you elect additional benefits, but you can always request a disability insurance quote if you’re interested in comparing your options.
Future Purchase Option vs. Inflation Protection
Inflation Protection is another rider that addresses the impact of rising costs over time. In short, it’s a cost of living adjustment. Insurance companies track the consumer price index (CPI) to determine when cost of living adjustments are necessary.
Inflation Protection automatically adjusts your disability coverage to keep up with inflation. The rider ensures that the purchasing power of your policy remains intact, even as the cost of goods and services rises.
Meanwhile, the Future Purchase Option allows you to increase your coverage as your circumstances change, accommodating major life events without the hassle of additional underwriting.
While the Future Purchase Option and Inflation Protection offer valuable benefits, you need to consider your specific needs and financial goals to decide which rider is right for you.
Ultimately, the choice between these riders depends on your circumstances and the flexibility and protection you seek from your policy.
What to Consider Before Adding a Future Increase Option Rider
Consider the following before adding a future increase option to your existing disability insurance policy:
1. Assess Future Needs and Financial Goals
Before adding a future increase option rider, it’s essential to assess your future needs and financial goals.
Consider your expected income growth, potential financial obligations, and any upcoming life events that might impact your insurance requirements.
By analyzing your long-term economic outlook, you can determine the appropriate level of coverage you need to safeguard your financial well-being.
2. Evaluate Long-Term Affordability
While purchasing insurance is essential, it’s equally important to evaluate the long-term affordability of the policy.
Consider whether the premium associated with the future increase option rider is within your budget and aligns with your financial goals. Striking a balance between adequate coverage and affordability is crucial to ensure you can sustain the policy over the long term.
3. Consider Your Health and Insurability
Insurance companies may require medical underwriting for future increase option riders, especially if you decide to exercise the rider.
Factors such as pre-existing medical conditions or changes in health could impact the availability and cost of additional coverage. Assessing your health status and discussing any potential implications with your insurance provider before adding the rider is important.
Advantages of a Future Increase Option Rider
Here are a few of the biggest advantages of a FICO rider:
- Flexibility: This rider allows you to increase your coverage in the future without a medical exam or additional proof of insurability. FIOs can be especially beneficial if you anticipate needing more coverage as your financial responsibilities grow.
- Convenience: You can easily increase your policy’s death benefit without applying for a new insurance policy. FIOs save you time and effort; you can elect additional coverage without starting from scratch.
- Cost-effectiveness: Compared to purchasing a new policy, adding an FIO rider to your existing disability or life insurance policy can be cost-effective because you leverage your original underwriting and avoid any potential premium increases that may come with a new policy.
Disadvantages of a Future Increase Option Rider
Like all financial considerations, FIO riders have some disadvantages to consider:
- Limited increase options: While an FIO rider offers flexibility, it’s important to note that there may be limitations on how much you can increase your coverage. Insurance companies typically set a maximum on the increased benefit amount.
- Premium increases: Adding an FIO rider to your policy may increase your premiums. The cost of the rider will depend on various factors such as your age, health, and the desired increase amount.
- Policy restrictions: Some FIO riders have certain conditions, such as an elimination period, that must be met before you can exercise the option to increase coverage. Or you may only be able to exercise your right to increase coverage during specific policy anniversary
How to Add a Future Increase Option Rider to Your Policy
Adding an FIO rider to your policy isn’t challenging, but every carrier will have a different process.
Contact Your Insurance Provider
Before adding an FIO rider to your policy, it’s essential to contact your disability or life insurance company to inquire about the availability of this option.
During this conversation, inquire about the specific requirements for adding the rider to your existing policy and gather any necessary documentation or forms you may need.
Understand Policy Amendments
A policy amendment is a change or addition to its terms and conditions. It’s crucial to comprehend the impact of this amendment on your existing coverage and any potential limitations it may impose.
Review the policy amendment document provided by your insurance provider carefully. Pay close attention to any changes in coverage, deductibles, or policy terms that may occur when you add the FIO rider.
Plan for Additional Premiums
You’ll likely have to pay additional premiums when you add an FIO rider. The cost of the rider will depend on factors like your age, health, the amount of coverage, and the duration of the rider.
Ask your insurance provider about the added cost and whether it will be a one-time payment or affect your regular premium payments.
Frequently Asked Questions
Can the policyholder increase coverage multiple times?
The Future Increase Option Rider allows policyholders to increase their coverage multiple times as their needs change. As their income grows, they can exercise the option to obtain additional disability benefits.
For example, medical residents and fellows starting their training can purchase a more affordable policy. As their income increases after training, they can exercise the Future Increase Option Rider to secure more coverage.
Aging policyholders may be anticipating future medical issues or extended hospitalizations. Policyholders can generally reevaluate their coverage every two to three years to increase their benefit amount if necessary.
When can an insurance policy owner exercise the future increase option rider?
Every insurance company has its own rules for future increase option riders, so it’s important to be informed about your eligibility and the conditions your carrier imposes.
For example, some insurance companies may allow policyholders to make benefit updates on their policy anniversary while others may have stipulations limiting policyholders to updates every two or three years.
Are there limitations on coverage increases?
While the Future Increase Option Rider lets you increase coverage, it’s important to note that the insurance carrier may impose limitations.
Some carriers allow the option to be exercised once a year on the policy anniversary, while others may have longer intervals, like every three years.
What happens if you don’t exercise the future increase option?
If a disability income insurance policyholder decides not to exercise the Future Increase Option, the policy maintains the originally selected coverage amount. If you don’t exercise the option, it won’t jeopardize the existing coverage or policy.
Do You Need an FIO Rider?
A future increase option rider is a valuable feature of long-term disability insurance and life insurance. Electing the right amount of coverage can help high earners and their families weather life’s uncertainties without worrying about the burden of student loan payments or being an effective guardian for their dependents.
We recommend regularly reevaluating your disability coverage and keeping yourself up to date with your carrier’s terms and conditions around benefit updates.
You can contact your insurance provider to find out more information, purchase additional benefits, and make any benefit updates to your policy.