When Guaranteed Future Increases Aren’t Necessarily Guaranteed

When purchasing an individual disability insurance policy it’s important to remember that the monthly benefit will be based on your income at the time you apply.

These policies will not automatically adjust the monthly benefit to protect any significant increases in income and, over time, the initial monthly benefit may not adequately protect your new income and expenses.

For this reason, most consumers choose to add a provision that guarantees the right to increase the monthly benefit in the future without worrying about having their requests denied due to any health changes that occurred after the initial application or the presence of any pre-existing conditions.

The ways that insurance companies define these future increase opportunities can vary greatly and it is helpful to consider how much additional coverage you might need based on future income expectations, how frequently increase options are made available and determine if there are any circumstances that may cause you to forfeit your right to protect your future income. 

One of these issues that every consumer should evaluate is if the policy language for this provision requires the purchase of additional coverage when one of these opportunities becomes available (usually once every one, two, or three years). 

This “minimum purchase provision”  usually requires you to accept at least 50% of the new monthly benefit amount and failure to do so will forfeit your access to any guaranteed coverage opportunities in the future.

It is also very important to know that the insurance companies that include this mandatory purchase language may require the insured to submit an application for more coverage even if there hasn’t been any increase in income. If your policy includes this type of language and you fail to submit the required forms, you may no longer be able to preserve this “guaranteed increase” opportunity for your future needs.

The presence of this “minimum purchase”  language isn’t necessarily a reason to look to other contracts, but it does require consumers to be a bit more attentive when these increase opportunities become available.

If you are considering purchasing a policy that includes this type of provision, it’s important to evaluate how any mandatory increase in coverage (and cost) will impact your ability to address other financial obligations. This is especially true for individuals who are in a period of their lives where their financial obligations may increase due to the purchase of a home, the establishment of a practice, or imminent education expenses for a child approaching college.

Maintaining an adequate amount of disability insurance income protection does require vigilance as income and expenses change.  With proper attention, it is possible to preserve your right to obtain future guaranteed coverage, allowing you to take care of yourself and all the people who depend on you.