Disability income insurance can come with the option of various optional riders you can add to your policy. Before committing to a disability income policy, read on to learn more about adding a cost of living rider and why it might be appropriate.
What is a Cost of Living Rider?
Put simply, a cost of living rider is a policy provision that you, as a dentist, may be able to add to your insurance policy (usually your disability income insurance) that will help any insurance benefits increase in accordance with the “cost of living”.
These cost of living increases may be based on numbers derived from the consumer price index. A cost of living rider is designed to help to compensate for inflation, which could affect the purchasing power of your insurance benefits.
Why Bother With a Cost of Living Rider?
A good reason to consider adding a cost of living rider to your insurance policy is the peace of mind that comes with knowing that your benefits may increase if you are ever on claim.
As inflation may decrease the purchasing power of your income, you may want your disability income benefit to increase to try to counter the effects of inflation.
Depending on the terms of a specific cost of living rider, a disability income insurance policy's benefit may increase up to 3% or 6% a year while on claim.
The cost of living increase may be tied to the Consumer Price Index, or be a set percentage increase for each year that you are on claim.
Who Is Eligible for a Cost of Living Rider?
The conditions that define eligibility will vary from insurance provider to insurance provider. Therefore, a good way to determine if you are eligible to add a cost of living rider to your insurance policy is to discuss with your licensed insurance agent.
Does a Cost of Living Rider Cost Extra?
Considering the benefits, the next logical question is wanting to know what such a rider would cost. After all, why wouldn’t you want the protection and peace of mind a cost of living rider provides? However, as with many things in life, there is a cost reward element to consider. The exact amount you will pay to add a cost of living rider will vary from provider to provider. To get an exact amount, ask your licensed insurance agent to give you a quote for adding the rider.
While we can’t provide an exact premium amount, here are some helpful general numbers regarding the pricing of this premium:
Typically, you can expect to pay around 3% more annually for your insurance premiums with the addition of a cost of living rider. However, some providers will increase premiums 6% and add a limit to how high your policy can increase in dollar amounts.
Therefore, your cost of living increase could top out at a preset amount. Again, the best way to determine what it would cost for you individually is to ask your insurance agent to give you a quote.
Your Next Step: Discuss a Disability Income Insurance Policy
Adding a cost of living rider may be an appropriate step to consider, to have your disability income insurance policy provide for the effects of inflation. However, it may not be appropriate for every situation. Contact one of our licensed insurance professionals to determine if adding a cost of living rider to your current or future policy is appropriate for you individually.
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This content is intended for general informational purposes only and should not be construed as advice. Please consult a licensed insurance professional concerning these topics. Please review your policy for the binding contract terms.