July 18, 2008, Newsletter Issue #19: The Pros and Cons of a Return of Premium Provision in a Disability Insurance Policy

Tip of the Week

Return of premium disability insurance coverage may or may not be an option you wish to purchase. While its name implies it is a wonderful option, you may deem the cost to be prohibitive. Here is how this feature works.

If you have opted for this option, you pay your premiums as required by all disability insurance companies. Depending on the specific language of your policy, if, after a specified time period (often at least 10 years) you have not filed a claim for disability benefits, your top rated disability company will return a portion or all of the premiums you have paid over this period. This option could prove to be a wonderful and welcome additional benefit for you.

However, you should analyze the cost of adding this option to your current disability insurance plan. This feature can increase your premiums by as much as 50%. Since the best long-term disability insurance for professionals is not inexpensive, a large increase may or may not be in your personal budget. Since many individual disability insurance premiums are tax deductible, this added expense may be less than it at first appears.

Return of premium disability insurance provisions can be a very profitable benefit option or an extra cost may not provide the intended purpose. Other issues involve the amount of return, a portion or the whole amount, what happens to the previous tax deductibility of your premiums, and additional deductibility potential problems if you have a Subchapter S corporation. Discuss this option with your accountant and/or attorney.

The above-listed tip is for informational use only. Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.

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