How to Insure Your Income: Future Increase Option

This option also may be referred to as the guaranteed insurability option or guaranteed purchase option, since it enables you to purchase additional disability income protection -- regardless of your insurability -- at specified future dates.

This benefit comes with several limitations:

• the premium charged for the future coverage will be based on your age at the time of purchase -- not your age when the policy was originally issued;
• you will be able to purchase only a specified, predetermined amount of additional coverage at each option date (many insurance companies limit the amount of additional coverage available to half the original amount);
• your earned income must warrant additional coverage -- that is, it's presumed that your income will increase substantially, leaving room for more coverage.

Another limitation is the number of option dates on which you may purchase additional coverage. Usually, these option dates will be every two or three years from ages 25 to 40 (or 50). These dates may be arbitrarily selected by the company, or they may coincide with your birthdays, marriage, etc.

Example: George, age 24, earns $3,000 per month and has a disability income policy that provides a monthly benefit of $2,000. His company's participation limit is 70 percent of monthly earnings. His policy contains a future increase option, which allows George to purchase an additional benefit of $300 per month every three years -- plus upon marriage and the birth of children.

George doesn't see any increase in his salary by the time he turns 25, so he's unable to exercise the full $300 option amount ($2,300 in benefits would exceed 70 percent of his monthly salary).

But, when he turns 28, George is making $3,500 a month. He can exercise the $300 increase ($2,300 is less than 70 percent of his monthly salary). A year later, George gets another raise and gets married. With his salary at $4,000 a month and his honeymoon about to start, he can exercise his option again -- and increase the monthly benefit to $2,600.