Plug the Gaps in Your Disability Insurance

Getting disability insurance is the first step to making sure you're covered in case of disaster, but it might not be enough. Depending on your income and how your policy is written, standard disability insurance can leave coverage gaps that could cost you thousands. While most disability policies will replace approximately 60% of your income should you become unable to work, policies vary in how they define disabled, whether the benefit increases with time and how long the policy lasts. Here are five disability insurance riders that can help secure your financial future.

Cost of Living Adjustment, or COLA

Inflation will increase but your disability benefit won't unless you've got this rider. "It adds about 15% to the cost of the (policy)," says James Holtzman, a financial adviser with Legend Financial Advisors Inc. in Pittsburgh, "but it protects your benefit from decreasing in the future." Cost of living adjustment riders are available in two varieties -- flat rate increases of a few percent each year or linked to the Consumer Price Index. The value of the rider increases the longer the policyholder draws disability benefits, so a cost-of-living adjustment makes more sense for a 20-year-old worker who has more time left in the workforce than a 60-year-old employee.

Own Occupation

A standard disability policy provides coverage if you can't return to any job. That means a surgeon who can't perform surgery but can serve coffee at a diner isn't eligible for benefits, despite the $100,000-plus salary reduction he or she might take. An own-occupation rider provides coverage if you can't return to your job. "(This rider) is most beneficial for those in specialized occupations," says Chris Haire, product performance director for Mutual of Omaha. Designed for workers in high-income occupations that require years of specialized training, own-occupation riders -- which can cost anywhere from 2% to 20% of your premium, Haire says -- provide coverage specific to your profession.

Lifetime Extension

"The basic disability policy would pay a benefit to age 65. If you reached age 65, even if you were still disabled, the benefits would end," says Ronald Graff, director of product development and strategic planning for individual disability insurance products for MetLife. "The lifetime extension says that if you become disabled at some point, usually before age 45, and if you are still disabled through age 65, then the benefit is extended through your lifetime or until you recover." Graff adds that policyholders over age 50 usually aren't eligible for the rider, and that those under 50 should heavily consider whether it makes sense to pony up the added cost for lifetime extension rider or to invest the funds elsewhere, like say, your retirement account.

Future Increase

A future-increase rider guarantees that if your salary goes up, you'll be able to purchase more insurance without enduring a second medical test. "This is for people concerned that they won't be insurable in the future," says Haire. "If someone doesn't see their salary growing, it doesn't make sense." Haire says a future-increase rider will add approximately 10% to the cost of a disability policy, but for policyholders with poor family health history or high likelihood of injury, it can pay off tenfold.

Return of Premium, or ROP

For consumers who are wary they could be throwing money away on disability insurance they'll never use, an ROP rider can ease your mind. But it'll cost you. "Basically (a return of premium rider) says if you haven't filed a claim after some period of time, usually five years, sometimes 10 years, the (insurance) company will return some portion of the (total) premium you paid in that time," says Graff. "Generally, it's very expensive. It usually adds 50% to 60% to the base policy costs." Holtzman adds that ROP riders typically return 50% to 90% of the total premium paid, but consumers should carefully evaluate if the rider makes financial sense. "If you need to refund the premium to make your overall financial plan work, then you're doing something wrong," he says.