- September 28, 2014
- Posted by: Brian Poncelet
- Category: Approved, Life Insurance
“What is an Insurance Rider?
An insurance rider is optional coverage you can add to your policy. “An insurance rider is really enhanced coverage or benefit to the policy holder for a cost above the base plan,” says Brian Poncelet, an independent certified financial planner (CFP) and owner of RightInsurance.ca. “You’ll pay additional premiums for additional coverage.”
Disability and Critical Illness Riders: What to Know Before You Buy
Disability and critical illness are two types of insurance often overlooked by Canadians. Both protect your most valuable asset: your ability to earn income. Disability coverage and critical illness coverage are especially important for people who are self-employed or do not have good benefits.
If you do have benefits, and haven’t reviewed your policy book recently, you should; could you take a two-year (or longer) vacation without pay? If not, chances are you need disability and critical illness insurance.
Here’s a breakdown of the most common rider types:
Own occupation: This means if you cannot do your job and are disabled, even if you find another job or change careers, you will get paid. For example, a dentist who cannot use his hands and changes careers to sell real estate would still qualify for coverage. “If you can get this rider, get it. It’s that simple,” says Poncelet.
Regular Occupation extender: Under a basic policy, such as group disability, benefits may be denied after 24 months if you are able to work in another occupation based on your education training and experience, such as a minimum wage service job. The extender may add three more years before you are forced to find work elsewhere if possible. “If you can’t get Own occupation this is the next best rider,” says Poncelet.
Residual Disability (Partially disabled): This applies if you are unable to perform one or more of the important duties of your gainful occupation. You would receive monthly benefit if income loss is 80 per cent or more. “This is a must-have rider,” he says.
Future Insurability: Once a year you can increase coverage without a medical exam. An example would be if you had a back injury from a car accident, which could worsen over time. “Depending on occupation this a good option to have, but not critical,” he says.
Cost of living: This will increase coverage once a year based on inflation. “$1000 per month with 3 per cent inflation in 10 years would be $1,300 per month,” Poncelet says. “This is very important to have.”
ROP (return of premium): Usually 50 per cent of all premiums paid are refunded if no claim is made every seven years. “If your cash flow is reasonable, this is a good rider to consider, but is not as important as the other riders,” he says. “If no claims made, this actually makes the coverage a lot cheaper.”
Critical Illness Riders
“These riders are best if you plan on permanent coverage,” says Poncelet. “Since rates go up every 10 years, this quickly becomes expensive.”
Loss of independent Existence: In a nutshell, this coverage applies if you cannot perform at least two of six activities of daily living:
-getting out bed with or without using equipment
-toileting… maintain personal hygiene
-bladder and bowel continence
“Something to consider if having a permanent policy…this could easily viewed as a type of long term care coverage,” says Poncelet.
Return of premium at death: This is an ok rider as long as you aren’t diagnosed with cancer, hit by bus, or die within 30 days instead of getting paid a lump sum for a serious critical illness. “I own this myself, Poncelet says. “ For example, if I paid $50,000 worth of premiums over 13 years and I get hit by a bus or in a car accident or have a fatal heart attack all premiums are returned to my beneficiary.”
Return of premiums: Normally at the end of 20 years if you pay extra for this you can surrender the policy and get your money back. “I have mixed feelings on this,” he says. “The cost is about 30 per cent more.”
Disability waiver: If you become totally disabled for 90 days before age 60 the insurance company will pay for the coverage and the premium paid for the 90 days will be refunded. “ Pass on this,” he recommends. “Even though the cost is small the odds of collecting are slim. Better make sure you have a good disability plan.”