Disability insurance and life insurance have different purposes. Disability insurance supplements your income if you become ill and are unable to work. But life insurance provides benefits to your survivors if you die. Some types of permanent, or whole, life insurance policies build cash value. But what about disability insurance—does it have cash value?
Will Your Disability Insurance Policy Build Cash Value?
Although disability insurance doesn’t build cash value like permanent life insurance, there is a way to get some money back from the long-term disability premiums you’ve paid. You can add a feature—or rider—to your disability income insurance. It’s called the return-of-premium rider.
What Is a Return-of-Premium Rider?
A return-of-premium rider is a feature of long-term disability. When you meet the policy requirements, you’ll receive a percentage of your premiums back—on average, 50 percent. If you add a rider to your disability income insurance policy, you’ll have higher monthly premiums. And if you become disabled and unable to work, your return of premium payments might be affected.
When Will You Receive Return-of-Premium Payments?
Payment schedules vary depending on your insurer, the policy, and the terms of the return-of-premium rider. A rider might include one or more of these features.
- Milestones – Your insurer has a schedule for returning a percentage of your premiums. For example, the rider on your policy might send you payments every 8, 10, or 20 years.
- At age 65 or 67 – Some riders only return premium payments when you reach age 65 or 67—when your policy expires.
- Policy lapse – If your policy lapses, you may qualify to receive a percentage of premiums you have paid up to the date it lapsed.
- Upon your death – You can designate payments to a beneficiary or your estate.
Is Paying Higher Disability Income Insurance Premiums Worth It to Get Some Cash Back?
A return-of-premium rider can cost two to four times the amount of your base premium. Weigh your decision based on your needs, budget, and the factors below.
- Your annual salary – As an example, if your annual salary is $50,000, your yearly disability income insurance payments can range between $1500 and $2000.
- Return-of-premium rider – If the annual amount for your payments is between $1500 and $2000, the rider will increase yearly payments to approximately $3000 to $6000.
- Milestone payments – The terms of your policy determine when you are refunded a percentage of your premium. And depending on your insurer and policy terms, the payout can be 50 percent or more of your premiums.
- Disability income insurance payments – If you receive disability insurance income payments within the milestone, your insurer will subtract the amount of those payments from your return-of-premium payments.
Some consumers weigh the cost, decline the return-of-premium rider, and put the money they would have paid on premiums into a savings account.
Hunt Insurance of Raleigh-Durham, NC, will explain your options for disability income insurance. The only cost is the time you want to spend discussing your concerns. And you’ll get a free quote. Contact us today.
Disability income insurance replaces some of your income if
you become ill and unable to work. But how long do you need to keep it? When
you reach a certain age, do you no longer need disability income insurance?
Should You Drop Disability Income Insurance Based on Your Age?
Several factors influence when you might discontinue disability income insurance—and your age when the events occur varies by individual circumstances. Disability income insurance supplements your employment income, so regardless of your age if you’re still working, you might need the coverage. Consider a few scenarios.
- Your retirement age – When you fully retire, you don’t have employment income. And you might not need disability income insurance if you become ill after retirement. If your retirement benefits are enough to supplement your income, you can consider discontinuing the insurance. Still, if you retire and are under age 62, you might decide to keep disability income insurance until you receive social security benefits.
- Your employment type – If you’re self-employed, consider if you have enough savings to cover an extended illness that prevents you from working. Otherwise, it may be wise to keep the policy until it expires.
- Social Security income benefits – If you think your Social Security benefits are enough, and you don’t think you’ll need extra income if you become disabled, it might be time to drop your policy. If you are disabled, you can find out if you qualify for social security disability benefits.
- Policy expiration – Most disability income insurance policies end at age 65 when you begin to receive retirement benefits, social security benefits, or both. Many policyholders decide to keep disability insurance until the policy ends.
Is Keeping Disability Insurance a Waste?
Although it may seem that keeping disability insurance is a
waste of money, consider some statistics from the Centers for Disease Control
and Prevention (CDC):
- Each year about 43 million people have emergency
- Six in ten U.S. adults have a chronic disease.
- Four in ten U.S. adults have two or more chronic
- The leading causes of death and disability
include heart disease, chronic lung disease, cancer, stroke, Alzheimer’s
disease, diabetes, and chronic kidney disease.
- Lifestyle risks for chronic illness include
smoking, excessive use of alcohol, poor nutrition, and lack of exercise.
A healthy lifestyle helps prevent chronic illness, but
there’s no guarantee. An accident or unexpected illness can happen to anyone.
Disability income insurance eases the stress of being unable to work and losing
What If Your Job Provides the Insurance?
If your employer provides disability income insurance, you
may not need to purchase insurance from an external source. But consider your
circumstances, financial responsibility, and family size with the factors below:
- Amount of coverage – What percentage of income replacement is available with your employer-sponsored insurance?
- Coverage period – When does coverage begin and end if you become disabled and cannot work?
- If you’re no longer an employee – If you leave the company or lose your job, what happens to your disability income insurance? Will you lose it?
On average, disability insurance premiums are three to four
percent of your income. You can customize coverage to match your needs. Read
income insurance page for information on what a policy can cover.
At Hunt Insurance, we’ll give you a free, no-obligation quote. We communicate openly and honestly to prevent you from being over- or under-insured. Call or e-mail us to start the conversation.