The holiday season is here. It’s a time filled with fun, family and friends – and more than a little shopping. According to a survey conducted by Coinstar, 77 percent of holiday shoppers expected to go over budget last year.
It’s clear most people are looking for deals, and if they’re buying disability insurance, they may wonder how the return of premium rider option stacks up. Is it a good value? Learn how to address questions about the return of premium rider below …
How does it work?
The details of this rider vary significantly from carrier to carrier. In general, however, the return of rider premium allows people to get a percent of their insurance premiums refunded after a set period of time.
- The percent of premium returned typically varies from 50 percent to as high as 100 percent.
- The refund could occur repeatedly, like every five years. Alternatively, it could happen once when a qualifying event occurs, like when the insured turns 67.
In each case, you can expect that any benefits paid will be subtracted from the return. It’s important to read the details carefully so you understand exactly how your rider works.
What’s the appeal?
It’s pretty easy to see how this rider could appeal to many people. Disability insurance is important, but no one likes paying for it. Furthermore, although the odds of disability are high, many people assume that they personally will never be forced to stop working due to disability. For anyone who worries that they’ll never use their insurance policy, the promise of a premium return is very attractive.
Is there a downside?
Nothing in life is free, and that includes this option. Adding a return of premium rider to a disability insurance policy will increase the premium cost. In other words, your clients will have to pay more now to qualify for a return later.
We’re not talking about chump change, either. A return of premium rider can easily add hundreds of dollars to the annual premium. Some riders may almost double the cost of insurance. That’s a lot less money to spend during the holiday season.
Does it make sense?
There are many issues to consider when determining whether a return of premium rider makes sense for your client:
- How much more will the premium be?
- Can the client afford the additional premium cost?
- Would the client be able to invest the difference in a more lucrative manner?
To determine whether a rider is worthwhile, it’s helpful to calculate the cost of the rider and compare this to the potential return. You can see examples of how the math works out for different riders here.
Keep in mind that any calculations of the return assume that no claims are made. If the insured receives disability benefits, this amount will be subtracted from the return.
Most people could use a little extra cash, and the idea of getting premium money paid back is very appealing. Before your clients choose this rider, however, make sure they understand the pros and cons.
Also, if they’re price sensitive, make sure they know that having some disability insurance protection is better than having no protection at all. Use our Income Protection Options Worksheet to help them find a plan that works for their budget!