A guide to 5 common disability insurance riders

You already may have coverage for some of life's basic necessities—insurance for your car, home, health and life. But what about disability insurance coverage? Even if it's not at the top of your list, it's important to consider some form of disability insurance. With it, families more easily can plan for the future knowing a major illness or accident wouldn't have to stop them from paying their bills.

Finding the right type of disability insurance will require some research. We'll explore the basics of disability insurance along with the five common riders that help customize your policy.

Long-term disability insurance provides some assurance that you'll have income in the future, even in the wake of a disabling event like an injury or long-term illness. Disability insurance involves paying a premium to receive a benefit if a disability occurs. However, the family's income and type of support needed would shape the particulars of each insurance policy.

Customizing your policy involves researching insurance riders, which are additional levels of coverage or conditions for receiving your benefit. You also will want to consider the rider cost addition to your premium, since a much higher premium can be a trade-off for putting that same money into savings. Some riders even may reduce your premium costs, usually by lowering the risks or costs that the insurer is taking on.

Some circumstances that may impact the amount and structure of your disability insurance coverage include:

• Your job and how common injuries and illnesses would impact your ability to keep performing that job
• Your other coverage, such as employer-sponsored disability insurance
• Your savings, including emergency funds and investments
• Your expenses, including debt payments, ongoing medical costs and dependent care costs like childcare or long-term care for family members

When deciding how to customize your disability insurance, ask yourself, "What would life without my current income look like?" You can add caveats like, "... if I couldn't work at all for three years?" or "...if I needed to switch careers and begin at entry-level again?" to shape your thought process further. The answers to these questions can help you further pinpoint the coverage level you'll need to feel comfortable.

When you experience a life event that affects your ability to earn income, a basic long-term disability insurance policy might pay out a percentage of your income. Some policies might pay out a set amount of money per month for a particular amount of months, rather than a percentage of income. These structures may seem simple at first, but there are complexities to consider.

There are specific conditions you agree to when signing up for a disability insurance police. For instance, disability insurance is subject to both an elimination period and a benefit period.

This is how long you wait after you've become disabled to begin receiving benefits. It usually costs a higher premium to have your benefits begin one month after the event than it does to have coverage begin after 12 months.

This is how long a given disability qualifies you to receive benefits. Some people opt to only have coverage for the first 24 months of their disability, while others want coverage until they turn 67 or full retirement age.

Short-term vs. long-term disability insurance

Disability insurance can cover short-term disabilities (where you expect to return to work after a brief time) or long-term ones (where you expect to be out of work for a significant time or indefinitely). Understanding the distinction between short-term vs. long-term disability insurance can help you be sure you have coverage you need.

See the differences

All shifts in these policy choices influence how much disability insurance costs because they lead to buying different levels of protection. As an example, a family that has substantial savings, multiple income earners in the household and low month-to-month expenses might arrange for a lighter long-term disability insurance policy, knowing that they could rely on savings during a longer elimination period. They'd expect that they would not need benefits for very long, just as they adjusted to the changes in their lives.

Other families might know that their current expenses require nearly all of their month-to-month income, making a more robust policy a valuable way to know they'll have cash flow for as long as they need it after a disability happens. An insurance provider can price out a few options to help you understand how different policy structures will cost different premium amounts.

A typical disability insurance policy may cost between 1% and 4% of your total income in premiums. What drives the price toward the 1% or the 4%, however, involves how robust you make your benefit and what circumstances might generate a higher payment. It's all tied to the risk that the insurer is taking on.

Many disability insurance riders either increase the amount of circumstances in which you receive a benefit, increase your benefit amount in some way, or give you some additional flexibility in the future. Not every policyholder will be interested in every rider, and it makes sense to weigh the rider costs against your own need for that particular benefit.

Some riders will be more standard offerings for a disability insurance policy, while others may be available as an add-on rider or not available at all, depending on the insurer. To help you truly compare costs, ask for the status of each benefit before you commit to a policy so you'll know what's standard and what will require an additional rider cost. If you are interested in a rider that a given insurer doesn't provide, you might look into getting multiple quotes from different insurers.

Ultimately, it's key to understand the different types of disability insurance riders and their benefits so you can decide if they're the right addition to your policy.

A cost of living rider ties your benefit to an evaluation of changes in the cost of living, either a set percentage over time or based on an index of how the cost of living has changed. For instance, there's a period of substantial inflation or housing becomes more expensive, your benefit amount doesn't stay at the amount you chose when you first bought the policy.

Instead, the benefit amount grows over time to keep up with the purchasing power needed for your expenses. Of course, no evaluation of the cost of living is perfectly attuned to your own specific expenses, but this rider may help to ensure you'll have the purchasing power you need if you become disabled many years in the future.

A disability may impact the amount you can work in a week or how you perform particular duties in your job, rather than impacting your entire position. A residual disability benefit rider helps to offer some portion of your benefits if you can work during your disability period, but cannot maintain the same schedule and income that you had before your disability. This rider offers flexibility—not requiring you to choose an all-or-nothing approach of working full time or leaving your career.

The future purchase option benefit is a way to purchase the option to increase your benefits in the future without a new evaluation of your medical conditions. Because a medical evaluation is part of the underwriting process for disability insurance, adding this rider essentially lets you purchase more coverage down the road, if you increase your income over time and want to insure yourself for a higher benefit.

You pay a slightly higher premium to have the option, and a higher premium down the road if you purchase more coverage, but you avoid undergoing a reassessment by the medical underwriting team.

This benefit may help you reduce your premium by agreeing to adjust your insurance benefit payments based on any social insurance you may receive. You decide on the total benefit amount you'd receive with a disability and agree to apply for the applicable social insurance, such as Social Security disability benefits^* or workers' compensation. The total benefit you receive from these social insurance programs is taken into account, and the disability insurance pays out the rest to reach your total benefit amount.

This rider involves purchasing additional coverage if you already have other forms of disability insurance. It's often used in addition to employer-provided disability insurance. This kind of benefit guarantees an additional "wrap-around" level of coverage, above the other coverage.

It's valuable to take advantage of any employer-provided coverage, especially with the premiums paid as part of your benefits package. But if you don't believe that benefit would be sufficient, supplemental benefits help you fully prepare for a potential disability.

You can create a disability insurance plan that relies on many sources, from government social insurance to employer-provided disability insurance to your own savings nest egg. When you take all the options into account, you can fill any gaps with a personalized disability insurance policy with riders that provide you with the protection you want.

Talking with a financial advisor can help you determine the most valuable and cost-effective protection plan for you. Thrivent's policies can be customized with riders that include the future purchase option benefit, cost of living indexing benefit, the residual disability benefit, the social insurance offset benefit and the supplemental disability income benefit, depending on your preferences.