Can you elaborate on the inflation rider? I understand what it is but I guess my agent didn't really push me towards it although he obviously recommended it and explained it. I'm In the process of getting disability insurance and was planning on skimping on the inflation rider as well as the student loan repayment option.
Here's the bottom line: Get the most basic coverage you can afford, and then add the riders to get more coverage out of the basic policy, but only if you can afford them.
How much is the policy going to cost, and how much are the riders? How much coverage? Which company? Disability insurance is one of the areas in which most of the bells and whistles are worth getting. In fact, some are essential.
Non-cancelable : Essential. This is standard
Own-profession: Essential for physicians, but your own specialty is more important, but as a student this may not be an option. So for example, if you're a surgeon, you want to collect if you lose a hand, you don't want to be forced to re-train as a psychiatrist. If you're a psychiatrist, your premiums will be lower, since you can practice just fine without a hand or possibly if legally blind, for example. But policy costs will vary with your specialty, for that very reason.
Exclusion Period: Here is where you can save a lot of money. Get at least a 90 day period. I would consider a 180 day period if there's a big price difference. This is the number of days before you get paid for a disability. It means you need to be out almost 6 months before your policy pays, but typically, you get paid retroactively. You will need to support yourself if, for example, you break a leg and are out of work for 5 1/2 months. Up to 6 mos, live off your emergency fund.
Future Purchase Option ( or Guaranteed Insurability): Get this if you can afford it. It allows you to buy more coverage every year or 2 or 5 depending on the plan, without any medical exam or questions. This will let the plan you have now increase in value to you. Your premiums will go up, but you'll have more insurance and more income that needs coverage. This allows you to keep up with inflation in your salary.
Cost of Living: I would get this if you can afford it, but if you can't , you can skimp for the reasons you mentioned. How much will this cost? I believe that this one means that your benefits, once they kick in, will increase by either the actual cost of living, or in some cases, 5% a year. Inflation is ongoing, so you will want this. True, it's more valuable if you're disabled early, but after 20 years of disability, inflation would halve the value of the benefit, so I would vote for this, but it depends on the cost. Look at it this way: The cost to you reflects the cost to the company. That is, it's very costly to the company if you use it early on, but less costly to them if you don't, and the amount they charge you factors all of this in.
It's disaster coverage, and if you need it early on, it's a bigger disaster and you need the cost of living rider. Remember, this is potentially your salary for the rest of your life! This might have to pay your rent, and your home health aid, your food, your electricity. These go up with inflation. Later on, it's less valuable, so as your income goes up later, you can consider some new policies without the rider. But this policy, that you'll keep until retirement, is the one that needs this rider the most. But some coverage is better than none, so your logic is good. If you can't afford it, don't get it.
Student loan: I'm not familiar with this option. Here too, it depends on cost. On the one hand, you're less likely to need it later on, but depending on cost, it's going to cover extra dollars. On the other hand, the loans themselves might not need to be paid back if you're disabled. Check the terms of the loans. I would probably skip this one if you need to cut back somewhere.
There are two other options that are good if you can afford them but probably not for you since they are optional. One is called catastrophic coverage. This essentially gives you long term care coverage if you're disabled. It pays extra for nursing care at home, maybe also in a nursing home, but this is rarely used. Good to have, but not if you can't afford it , and also depends on the cost. The other option is a retirement option. It pays extra for you to put money into a retirement fund, so you have money to live on after 65. The catch is you usually have to invest with the insurance company itself, and this will mean higher fees and fewer investment options. Better to have more basic coverage, but if you're maxed out based on salary, this is a way to get more coverage. Both of these options are probably only if you have extra money to afford them. Post the details of the costs for the policy or PM me if you wish. Disclaimer: I'm not an insurance agent and not an expert, but I can offer my non-professional non-expert opinion.
Typical costs I have seen recently for level premium non-cancellable policies with COL rider etc, are about $120 per month for $4000 a month of coverage ( i.e. pays 48,000 a year, covering a $96,000 a year salary) for a 40 year old. You're probably younger, so you'll pay less. I was paying more, $152.22 for $4000 on my first policy, obtained at age 37, I think. That was a while ago, prices might be different, or I had more riders, but that should give you a rough idea of the cost. Probably mine was higher because I had specialty specific coverage and I was in a very demanding surgical specialty.
ADD: I just found this article on the White Coat Investor that addresses exactly your question:
http://whitecoatinvestor.com/disability-insurance-to-cola-or-not-to-cola/ Read the other articles there on disability insurance. Then you'll know more than me. Use the links below the article I cited or use their search feature on the upper left.
