Hey everyone, Jason here. Welcome to another episode of Disability Insurance 101. Today we're diving deep into policy features, and I'm going to break down everything you need to know about benefit calculations, cost of living adjustments, residual disability benefits, and important riders and options. As an insurance professional for over 15 years, I've seen how crucial understanding these features is when selecting the right disability policy.Let's start with benefit amount calculations. This is essentially how much money you'll receive if you become disabled. Typically, insurance companies will offer between 60% to 70% of your gross monthly income. Now, you might be thinking, why not 100%? Well, the idea is to provide enough to live on while still maintaining an incentive to return to work when possible. Plus, if you're paying the premiums with after-tax dollars, your disability benefits will be tax-free, which means your take-home amount could be pretty close to your regular after-tax income.Here's something important to consider: if you're self-employed or a business owner, the calculation gets a bit more complex. Insurance companies will look at your net income after business expenses, not your gross revenue. They'll typically average your income over the past two or three years to determine your benefit amount. Make sure to have your tax returns and financial statements ready when applying.Now, let's talk about cost of living adjustments, or COLA. This is a crucial feature that many people overlook. Think about this: if you become disabled in your 30s and remain disabled for 20 or 30 years, inflation could seriously erode your buying power. A COLA rider adjusts your benefits annually to keep pace with inflation. Some policies offer a fixed increase, like 3% per year, while others tie the adjustment to the Consumer Price Index. In my experience, the best COLA riders are those that compound annually and don't have a cap on the total increase.Here's a quick example: let's say your monthly benefit is $5,000. With a 3% compound COLA rider, after 10 years, your monthly benefit would increase to about $6,720. After 20 years, it would be approximately $9,030. That difference can be crucial for maintaining your standard of living long-term.Moving on to residual disability benefits - this is possibly one of the most important features of a good disability policy. Residual disability coverage kicks in when you're not totally disabled but still can't perform all of your job duties or can only work part-time. This often happens with conditions like chronic pain, fatigue, or after recovering from a serious illness or injury.Let me give you a real-world example. I had a client who was a surgeon who developed early-stage Parkinson's disease. While she couldn't perform surgery anymore, she could still see patients for consultations and work in a medical advisory role. Her income dropped by 60%, but because she had residual disability coverage, her policy paid a proportionate benefit that helped make up much of the difference.Most residual disability riders will pay a benefit based on your percentage of income loss. So if you're earning 40% less than your pre-disability income, you'll receive 40% of your total disability benefit. Some policies also include a recovery benefit, which continues to pay benefits even after you've physically recovered but are still experiencing a loss of income while rebuilding your practice or business.Now, let's explore some other important riders and options. First, there's the future increase option rider. This is absolutely essential for young professionals who expect their income to grow significantly. It allows you to increase your coverage in the future without additional medical underwriting. All you need to show is increased income.The own-occupation rider is another crucial feature, especially for highly specialized professionals. It defines disability based on your inability to perform your specific occupation, even if you could work in another field. For example, if you're a dentist who can no longer perform dentistry but could teach at a dental school, you'd still receive full benefits with true own-occupation coverage.The catastrophic disability rider is worth considering too. It provides additional benefits if you're severely disabled and need constant care or have lost the ability to perform multiple activities of daily living. This extra benefit can help cover the cost of care that regular health insurance might not cover.One rider that's often overlooked is the automatic increase benefit rider. Unlike the future increase option, this automatically increases your base benefit for the first few years of the policy, usually by 3-4% annually. This helps your coverage keep pace with normal salary increases without requiring any action on your part.Let's talk about the student loan rider, which is particularly relevant for medical professionals, lawyers, and others with ...
