Disability Insurance - Benefit Increase riders

[Tabib]

I'm helping my girlfriend shop around for IDI.  It seems that there's a new rider (Benefit Increase Rider) these days different from the FPO/FIO that I'm used to in the past.  We asked an independent broker to obtain quotes from the Big 5.  Standard, Principal and MassMutual include a rider called Benefit Increase Rider or Benefit Update Rider (different names depending on which company, but same idea).

-Standard calls it "Benefit Increase Rider"
-Principal calls it "Benefit Update (BU) rider"
-Mass Mutual Calls it 'Benefit Increase Rider"

The rider allows the insured adjust there coverage/monthly benefit every 3 years so it's consistent with any changes in income in 3 year increments.  Don't have to provide evidence of medical insurability like FIO/FPOs.  Just have submit Income information.  Each time, you have accept at least 50% of what they offer.  Increaeses subject to I&P limits.

It's kinda hard to compare this new BI/BU rider to the FIO/FPO rider; not quite oranges to oranges.
I couldn't find a whole lot if info on this online.

What are the advantages of this Rider over the traditional FPO?  Any thoughts WCI? LBK? or MR?

[Scott at MD Financial Services]

Tabib,

You are correct they are a bit different but not to much.  Benefit Increase or Update riders typically have a 3 year window BUT a few have additional triggers that can happen like loss of group coverage (moving from residency or a job that had group coverage) or 50% income increase (got a job after residency) as additional triggers.  There are some of these Benefit update features that don't have that so you have to look at them carefully.  The perk is you don't pay for the Benefit Update, the con is because you don't pay for it you don't own it so it is on the companies terms and not yours.  The pro to a Future Purchase Option is you do own it so you control it and as you use that feature the cost for that that Future Purchase Option goes down or away depending on if you fully utilized it or just partially utilized it.  The con is you have to pay for it while you have it.

If I can help further please let me know.

Scott

[Tabib]

Hi Scott,

Thanks for the two cents.
I think the FIO/FPO riders makes sense for those are expecting large increases in income in short periods of time whereas those who are established and are salaried with annual increases on par with inflation, then the BU/BI riders make sense.  What do you thinK?

[Scott at MD Financial Services]

Tabib,

It really depends on which carrier has the best cost per dollar of coverage and then what if any variable options they have for increase options.

Scott

[DMFA]

Imo the biggest benefit to FPO or any benefit increase rider is in the event of loss of group disability, since many of us who are employed have group LTD at 40% or so, and as such get individual policy for the remaining 60%. If you choose to go independent or join an employer without LTD, it's easy to go up to full coverage (although you pay for it, of course). Another possibility is if you may consider slightly changing career courses to a much higher-paying position, like going from academic to private or doing a second residency in derm, etc.