I picked up a little gem the other day on the Bogleheads forum that I thought would be useful here. Brudude, an insurance agent who specializes in Guardian disability insurance, explained exactly what the disability retirement protection rider does. I quote:
The retirement protection sets up a trust account in your name in the event of a total disability in which retirement contributions are put into the account to be invested at your discretion. At age 65, the account is turned over to you to cash out or continue investing with. The minimum elimination period for this rider is 180 days and it has a modified own-occ definition of disability (cannot be working in another job) even if your base policy has a true own-occ definition. Residents can get $1,000/mo in retirement protection even if they have not started contributing to retirement accounts yet. The max benefits for retirement protection is around $4k/mo. The idea is that if you are totally disabled and can't work in any job, you are likely not going to be making any retirement contributions, so the rider fills that hole.
A couple of things to realize. First is that there is a trust account. The agent didn't think there were any significant expenses associated with that account, but I find that hard to believe. No one is going to run a trust for free. Now it is possible the insurance company will set it up and pay for it themselves, but it doesn't sound like that is mentioned anywhere. He said this in response to my question about it:
I am not sure what the expenses are for the trust account, would need to get that info from Guardian. There are no expenses or fees listed in any brochure or policy, so they may be waived because you have to be disabled to get the benefit in the first place. As far as I know you can invest in anything you want without restriction.
It is also not entirely clear how this trust account is taxed. It sounds to me like it is a fully taxed account. So now I'm going from using a 401K and backdoor Roth IRAs (in which my investments grow tax-free) to a taxable trust account with unknown expenses and unknown investments. Forgive me if I sound cynical, but I can just imagine this trust account being very similar to all the variable annuities I see out there with crappy, expensive mutual fund-like options and ridiculous account fees. I'd need to see a lot more details before I paid for this rider.
The second important thing to realize is that the definition of disability is different for your main disability payment and this retirement account contribution benefit. So if you go back to work as an urgent care doc after being disabled from being a hand surgeon, then you still get the disability benefit, but you miss out on $4K a month in retirement contributions. Seems kind of dumb to pay extra for that true specialty-specific own-occupation benefit when it doesn't apply to everything. Who wants to go back to work when your first $6K a month (remember taxes) doesn't count? Why the company would want to disincentivize you from going back to work is beyond me.
I think a far better way to address the issue of needing to save for retirement even if disabled is to just buy a bigger policy. If you've already got a maximum policy and feel you couldn't live on that and save for retirement, then perhaps you ought to take a closer look at your lifestyle.
But if you really would like this protection (and I recommend you get the full details on that investment account prior to purchase), keep in mind you can buy any insurance policy from any company and buy this rider as a stand-alone policy from Guardian. Other companies may also offer similar riders/policies now or in the future so always buy your disability insurance from an independent agent.