Unquestionably, physicians have far greater potential to earn a high income; however, a high income doesn’t necessarily translate into future financial security especially when all it takes is a sickness or injury to take that potential away. For that reason, most physicians have taken at least the initial step in protecting their income potential by purchasing a disability insurance policy. But as their careers progress, the real issue becomes whether or not their disability income protection is keeping pace with their growing incomes. New physicians, especially, need to look at the future increase options available in their policies in order to know exactly how they work and how to use them. Here we examine the Benefit Update Rider and Future Increase Option in the Principal Financial Groups individual disability insurance policies.
Most individual disability insurance plans designed for physicians include a Benefit Update Rider, sometimes referred to as a Future Increase Option or a Guaranteed Insurability Option. You will also find many plans that include Future Benefit Increase Option, or Automatic Increase Option. Most plans charge an extra premium for one or both. With the Principals, individual disability plans they both come with the policy, and they can be used in conjunction with one another.
What’s the difference between them and can you use them?
Benefit Update Rider (BUR)
The Benefit Update rider is one of Principal’s most competitive features, providing physicians, at no cost, the opportunity to increase their policy’s benefit amount every three years without evidence of insurability. There is no cap or age restrictions to the amount of benefit a client can receive2. With any accepted BUR increase, all definitions, discounts, provisions and current rates (at attained age) of the original policy apply. When the benefit is increased, the original policy is simply amended to reflect the new amount. Although there is no additional cost for the BUR, Principal requires that you purchase a total of 75% of the benefit amount for which you qualify in order to maintain the rider and future eligibility.
Although the BUR is set up as three year incremental review process to determine benefit increase eligibility, you can also request an increase using the Advance Option if your situation meets one of the following criteria:
- Your income increases more than 50% (think residency graduation)
- You also have group disability coverage which is terminated, the benefit coverage is changed or you change jobs and are no longer covered by a group plan
Every three years you will be notified of your impending review date. If you’re income increases or decreases by less than 10% during that time, you just need to return a form with no additional financial information. If your income increases or decreases by more than 10% you will need to submit additional financial information. Then, following a review, you will be notified of your increase in benefit. Should you not respond or you fail to accept a future increase, the rider will terminate.
Future Benefit Increase (FIO)
The biggest difference between the BUR and the FIO, is that the FIO increases your benefit automatically – meaning, you do nothing except to accept or reject the offer on your policy anniversary. Again, this is a no cost rider, and it provides the opportunity to increase your monthly benefit each year based on the increase in the Consumer Price Index (CPI). The maximum increase in a given year is 10% and the minimum is 1%. The FIO rider is renewable every six years.
BUR and FIO Working Together to Provide Maximum Coverage
With the Principal disability insurance plan, you can have both BUR and FIO (remember, you pay for neither), and they can work in conjunction with one another. For instance in the years between your BUR review and possible benefit increase, you will receive the FIO benefit increase. In a year in which you are eligible for a Benefit Update, the FIO is waived. If you don’t receive a BUR increase, you will still receive an FIO benefit increase.
The bottom-line is that, managing your future income increases and protecting them against a disability is just as important as managing your current income. It’s vital that you have a plan and the mechanisms in place to ensure your income protection keeps pace with your income growth.