The Insurance Buying Guide: 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 disability 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.
There are a specific 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, sometimes, to age 50. These dates may be arbitrarily selected by your insurance company, or they may coincide with your birthday, marriage or births of children.
For example, George, age 24, earns $3,000 per month and currently has a disability income policy that provides a monthly benefit of $2,000. His company's issue and participation limits are 70 percent of monthly earnings. His policy contains a future increase option, which allows George to purchase an additional benefit of $300 per month on his 25th, 28th, 31st, 34th, 37th and 40th birthdays -- 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 $300 option amount ($2,300 in benefits would exceed 70 percent of his monthly salary).
However, 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, he can exercise his option again -- and increase the monthly benefit to $2,600.
