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Future Benefit Increase rider

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  • Avatar saildawg 
    Participant
    Status: Physician
    Posts: 261
    Joined: 01/24/2016

    My wife and I are both physicians.  We have a disability policy from Principal (bought in residency 4 years ago), that has a future Benefit increase rider.  I was taken off guard when informed that we must accept at least 50% the proposed new increase or loose the ability to keep the rider to increase the benefit in the future for my wife.  To their credit, the proposed new and 50% of the proposed new rider both have the same 3% ratio of monthly premium to benefit ratio so they are not up-charging us.

    Question 1: Do we need to increase?

    On average monthly post tax we bring in 12K from me and 15k from my wife.

    Current coverage for my wife is $9,195 with new proposed being $14,100, or 50% being $11,655

    Our average costs are 12k per month, but may increase as we had our second child in 20 months to around 14-15k. (Mostly mortgage payments on a 15 year plan, and child care)

    If she would become disabled we would have 5-6k excess as long as I kept working, and maybe more as a bulk of our expenses are child care.

    Question 2:  Is this a common practice?

    There was no fee to have the future benefit rider, but I don’t like the use it or loose it aspect that suddenly came up.  Seems like over complicating a financial product which I am not a fan of.

    Just wanted some opinions, thanks!

    #179336 Reply
    childay childay 
    Participant
    Status: Physician
    Posts: 817
    Joined: 01/09/2016

    I let both of our increases riders lapse.  Similar situation, dual docs, similar income and coverage.  Don’t see the need for over $10k monthly benefit in our situation

    #179340 Reply
    Michael @ BattDouglas Michael @ BattDouglas 
    Participant
    Status: Financial Advisor, Insurance Agent
    Posts: 76
    Joined: 04/13/2018

    Hello and Happy New Year!  Your question about Principal’s Benefit Update rider is excellent.  A bit of background:  The benefit update rider is an optional rider on your Specialty Specific Disability Insurance policy.  Some insurance companies have an additional fee for the option to increase without a medical exam or underwriting.  Principal does NOT charge for this option after approval of your initial policy.  As a result of the no-charge rider, Principal asks that you keep your coverage in line with your wage and employer benefits.

    Also, note your coverage through work as this may lower the offer from Principal.  Be sure to specify what percentage of the employer coverage is paid by you and by your employer.

    How much to accept?  We recommend that you cover your essential needs with your personal policy.  (Work benefits may change over time.)

     

    Thanks again for sharing.

    Michael Douglas CLU, CHFC, CFP with the BattDouglas Financial Group
    Direct Phone: (216) 470.2728, [email protected]

    #179350 Reply
    Liked by saildawg
    Scott at MD Financial Services Scott at MD Financial Services 
    Participant
    Status: Website Sponsor, Insurance Agent, Small Business Owner
    Posts: 378
    Joined: 01/14/2016

    My wife and I are both physicians.  We have a disability policy from Principal (bought in residency 4 years ago), that has a future Benefit increase rider.  I was taken off guard when informed that we must accept at least 50% the proposed new increase or loose the ability to keep the rider to increase the benefit in the future for my wife.  To their credit, the proposed new and 50% of the proposed new rider both have the same 3% ratio of monthly premium to benefit ratio so they are not up-charging us.

    Question 1: Do we need to increase?

    On average monthly post tax we bring in 12K from me and 15k from my wife.

    Current coverage for my wife is $9,195 with new proposed being $14,100, or 50% being $11,655

    Our average costs are 12k per month, but may increase as we had our second child in 20 months to around 14-15k. (Mostly mortgage payments on a 15 year plan, and child care)

    If she would become disabled we would have 5-6k excess as long as I kept working, and maybe more as a bulk of our expenses are child care.

    Question 2:  Is this a common practice?

    There was no fee to have the future benefit rider, but I don’t like the use it or loose it aspect that suddenly came up.  Seems like over complicating a financial product which I am not a fan of.

    Just wanted some opinions, thanks!

    Click to expand…

    When you don’t pay for the features and they are included then the carrier retains control of utilization of them.  When you pay for the increase options then you get to decide when and how much you buy (note that when you do pay for the features then the cost for that feature goes away as you exercise your options).  If you really don’t want more coverage then let the Benefit Update feature drop off otherwise, as you have noted, they will make you buy up to keep you in their window of ‘appropriate coverage proportions’.  The other thing you may have is their annual increase option that has the benefit trending up with the rate of inflation (4-10%) every year post purchase.  IF that is on the policies then letting the BU drop is not so bad because you still have annual increase options being presented to you.

    Q2:  Principal, some Guardian and some Mass policies have this BU process where they control the when and how much the policy is going to increase.  Ameritas, Standard, Ohio all have an increase allotment amount set up at the time of policy purchase that you control on the policy anniversary, increase or stay the same it is up to you.

    S. Scott Nelson-Archer, CLU, ChFC with M. D. Financial Services, Inc.
    Direct Phone 713-966-3932, Email [email protected]

    #179355 Reply
    Liked by saildawg, Hank
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1390
    Joined: 01/08/2016

    By the time I was making enough money to consider extra benefit, I was making enough money to not need extra benefit due to my savings ….

    #179494 Reply
    Liked by childay
    Avatar saildawg 
    Participant
    Status: Physician
    Posts: 261
    Joined: 01/24/2016

    Scott and Michael thanks for your explanation.  In terms of covering basic needs it seems like our current policy will be sufficient as we have dual incomes, and still would be able to put money away for retirement, although not nearly as much as we are now but we have a goal to reach FI ASAP.

    #179504 Reply
    Scott at MD Financial Services Scott at MD Financial Services 
    Participant
    Status: Website Sponsor, Insurance Agent, Small Business Owner
    Posts: 378
    Joined: 01/14/2016

    Scott and Michael thanks for your explanation.  In terms of covering basic needs it seems like our current policy will be sufficient as we have dual incomes, and still would be able to put money away for retirement, although not nearly as much as we are now but we have a goal to reach FI ASAP.

    Click to expand…

    Sounds like the need to be compliant on the Benefit Update process is nullified, congrats on getting 1 step closer to FI!

    S. Scott Nelson-Archer, CLU, ChFC with M. D. Financial Services, Inc.
    Direct Phone 713-966-3932, Email [email protected]

    #179529 Reply
    Avatar fasteddie911 
    Participant
    Status: Physician
    Posts: 259
    Joined: 05/31/2016

    I may be misreading the OP, but in fairness to Principal, this info was available to me and I knew about it when I signed my policy with them 4-5yrs ago.

    #179547 Reply
    Avatar saildawg 
    Participant
    Status: Physician
    Posts: 261
    Joined: 01/24/2016

    I just was not well educated, probably my fault as I think the policy is good.  I just assumed future benefit upgrade did not have this caveat in it.

    #179560 Reply
    Michael @ BattDouglas Michael @ BattDouglas 
    Participant
    Status: Financial Advisor, Insurance Agent
    Posts: 76
    Joined: 04/13/2018
    Disability Insurance

    The 3 year income and coverage certification is a point we clarify often.  I’m glad to be of help.

    Michael Douglas CLU, CHFC, CFP with the BattDouglas Financial Group
    Direct Phone: (216) 470.2728, [email protected]

    #179566 Reply
    Scott at MD Financial Services Scott at MD Financial Services 
    Participant
    Status: Website Sponsor, Insurance Agent, Small Business Owner
    Posts: 378
    Joined: 01/14/2016

    I may be misreading the OP, but in fairness to Principal, this info was available to me and I knew about it when I signed my policy with them 4-5yrs ago.

    Click to expand…

    Please don’t take my “need to be compliant” comment any other way than following the carrier guidelines in order to maintain the option on the contract.  The carrier perk to you dropping that feature from a policy if the insured is non-compliant is that they are no longer on the hook for more benefit regardless of any health or avocation changes in the future.  That is a pretty big deal to them just due to the fact there are many situations where one develops health issues, incurs injuries, or has hobbies (private pilots, rock climbing, frequent scuba diving, racing, rodeo, mountain bike racing, certain back country skiing, and the list goes on) that would then prevent a new medically underwritten policy from being written or written but having those issues excluded.  With the benefit increase feature in place then the carrier has to cover those new issues without any review.

    In my opinion it is a really interesting situation, if you have the benefit increase options then you get coverage issued regardless of what else is going on with you and the carrier gets to sell more product so kind of a win win.  If you drop the feature then that too is kind of a win win, you don’t have to buy anything you don’t want and the carrier is no longer on the hook for more benefit exposure other than what they originally signed up for.  Without the increase options, if you decide you want more benefit then you must prove you still medically qualify and then the carrier can decide if they want to take that risk at the rate structure that is in place at that time vs. when the policy was originally taken out.

    The real question is do you want to hold the risk of health, lifestyle changes, and rates or do you want to off load it on some insurance carrier, that is what benefit increases are all about!

    I hope that helps.

    S. Scott Nelson-Archer, CLU, ChFC with M. D. Financial Services, Inc.
    Direct Phone 713-966-3932, Email [email protected]

    #179573 Reply
    Liked by saildawg
    Avatar saildawg 
    Participant
    Status: Physician
    Posts: 261
    Joined: 01/24/2016

    I may be misreading the OP, but in fairness to Principal, this info was available to me and I knew about it when I signed my policy with them 4-5yrs ago.

    Click to expand…

    Please don’t take my “need to be compliant” comment any other way than following the carrier guidelines in order to maintain the option on the contract.  The carrier perk to you dropping that feature from a policy if the insured is non-compliant is that they are no longer on the hook for more benefit regardless of any health or avocation changes in the future.  That is a pretty big deal to them just due to the fact there are many situations where one develops health issues, incurs injuries, or has hobbies (private pilots, rock climbing, frequent scuba diving, racing, rodeo, mountain bike racing, certain back country skiing, and the list goes on) that would then prevent a new medically underwritten policy from being written or written but having those issues excluded.  With the benefit increase feature in place then the carrier has to cover those new issues without any review.

    In my opinion it is a really interesting situation, if you have the benefit increase options then you get coverage issued regardless of what else is going on with you and the carrier gets to sell more product so kind of a win win.  If you drop the feature then that too is kind of a win win, you don’t have to buy anything you don’t want and the carrier is no longer on the hook for more benefit exposure other than what they originally signed up for.  Without the increase options, if you decide you want more benefit then you must prove you still medically qualify and then the carrier can decide if they want to take that risk at the rate structure that is in place at that time vs. when the policy was originally taken out.

    The real question is do you want to hold the risk of health, lifestyle changes, and rates or do you want to off load it on some insurance carrier, that is what benefit increases are all about!

    I hope that helps.

    Click to expand…

    Great explanation!!

    Thanks

    #179575 Reply

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