What is a Future Increase Option (FIO) Rider?
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Long-term disability insurance can be an important tool for protecting your financial future, because it can provide income to live on if you lose your ability to work because of a covered illness or injury. Like life insurance policies, disability policies come with optional riders that allow policyholders to customize their policies with terms and features that offer additional protection. Some riders, for example, allow for partial payouts if you have some ability to work, or provide additional financial protection by paying off student loans.
What does a future increase option rider do?
Future Increase Option (FIO) riders give policyholders the option to increase their disability insurance coverage, typically once a year until age 55.1 It’s a type of guarantee they lock in when purchasing the policy, giving them the option to increase monthly benefit payouts alongside increases in their income, regardless of any new health concerns — and without needing to undergo additional medical underwriting later on.
Many people get individual disability insurance early in their careers before reaching peak earning status. It can be a good time to purchase disability coverage, because younger applicants are more likely to be in good health, which translates to lower rates. With an FIO rider in place, they can choose to increase coverage later on as their income grows, without the need to provide medical insurability even if they’ve developed new health conditions.
How it works
When you take advantage of your FIO to opt for increased coverage, it means that you'll get a higher disability payment later on if you experience a covered illness or injury. And, payments will remain at the increased level for as long as you qualify for benefits.
FIOs from different disability providers may work differently. Some allow you to purchase optional coverage each year until you reach a certain cap, which could be two or three times the policy's initial monthly benefit. Other policies may have limits on how quickly you can increase coverage year-over-year, such as limiting increases in monthly benefits to a 10% maximum.
You can expect to pay a slightly higher monthly premium if you add an FIO rider to your disability income insurance. And, of course, each time you elect to expand coverage by increasing the benefit amount, the policy premium will increase accordingly. But again, the overall rates will still be based on your original (and typically better) underwriting risk — there's no need for a new exam or even questions asking about new health issues.
Depending on your insurance provider and the specific FIO rider you choose, increases in coverage may happen automatically or only when you decide to do so. Some FIO riders allow for annual increases, while others may offer increase options every two or three years. Finally, like all policy riders, an FIO has to be selected up front as you are purchasing the policy — it can't be added after the fact when the policy is already in effect.
What it costs
Future increase option riders do impact premium payments, but the added cost isn't usually significant. The actual amount varies significantly depending on multiple factors, such as the specific terms of the rider and even your policy provider. Many young professionals who expect their earnings to increase significantly in the course of their careers may find the added cost to be well worth it.
Other disability insurance riders that can increase your benefits
FIOs are only one option when it comes to disability insurance riders, and it’s important to make sure you’re choosing the riders that benefit you most.
One alternative to a Future Increase Option is a Cost of Living Adjustment (COLA) rider, which requires the insurance company to increase your benefits to account for inflation during a period of disability.2 COLA riders may be a better option for policyholders who don't believe their earning potential will increase dramatically over time, or those who are comfortable living on the wages they currently earn – because they know that potential inflation will be accounted for.
FIOs may be the better option for young professionals who expect their income to increase significantly throughout their careers and want to account for the potential cost of a more affluent lifestyle.
Other optional riders that may increase your monthly benefits can include the following:
Student Loan Protection riders provide extra money to cover any necessary student loan payments. This is a popular option with early-career professionals with high student loan debt, including doctors and lawyers.
Retirement Protection Plus protects retirement savings by matching the contributions you would have made to your retirement account while disabled.3
Catastrophic Disability Benefits (CAT) riders provide extra funds with up to 100% income replacement if you become irrevocably disabled or functionally impaired.
Who should consider this type of rider?
Younger policyholders typically benefit most from FIO riders, as they’re early on in their careers and typically have the greatest potential for future earnings growth. That’s why FIO riders are particularly popular among young professionals.
For example, doctors, dentists, and other medical professionals often see dramatic increases in annual income following their residency period. Adding an FIO rider allows these professionals to obtain disability insurance at a relatively modest cost while they are likely at their healthiest and expand coverage throughout their careers without having to go through additional medical underwriting.
Get a long term disability insurance quote
FIO options from Guardian
Guardian offers two specific FIO policy riders, allowing policyholders to expand coverage and receive benefits that account for increased earnings:
The Future Increase Option allows policyholders to increase disability insurance coverage annually through age 55, if they choose to do so.
The Benefit Purchase Rider allows policyholders to increase coverage every three years until age 55. In order to keep the rider in effect, policyholders must apply for and purchase at least 50% of the additional coverage at each opportunity.
To learn more and explore how a disability insurance policy can help protect your financial future, consider starting with a long-term disability insurance quote.