Social Insurance Benefits Rider

One of the sources of disability income available to wage earners is Social Security disability.  Although the likelihood of obtaining Social Security disability benefits is generally small because its definition of disability is difficult to meet, Social Security disability payments, nonetheless, could create overinsurance.  The Social Insurance Benefit rider is designed to overcome that overinsurance problem.  

Social Insurance Benefit riders enable policyholders to purchase disability income benefits that are a high percentage of the insured's current income without the concern about overinsurance that could be caused by the possible payment of Social Security disability benefits.  Let's look at how they work.

Despite its name, a Social Insurance Benefit rider pays a monthly disability income benefit only if Social Security does not pay.  If and when Social Security disability benefits are payable, some or all of the benefits under these riders cease.

Two approaches have been taken by insurers in the development of Social Insurance Benefit riders.  In part, the approach chosen has been influenced by the jurisdiction in which they were to be sold.  The two riders emerging from this development are:

Social Insurance Substitute rider
Social Insurance Supplement rider

In the case of the Social Insurance Substitute rider, benefits are payable only if no Social Security disability income benefits are payable. If any Social Security benefits are payable -- no matter how small -- no rider benefit is payable.

For example, suppose an insured purchased a $1,000 monthly benefit to be provided by a Social Insurance Substitute rider.  As a result of the insured's disability, he is awarded a $300 monthly Social Security disability benefit.  Since the rider benefit is a substitute, the rider benefit would be zero.

Instead of the substitute benefit, a supplement benefit might have been purchased.  In that case, the benefit payable is the amount of monthly income purchased less any benefits provided by Social Security; the rider benefit supplements, and is payable in addition to, the Social Security disability benefits.

In the example that we just looked at in which the insured purchased a $1,000 Social Insurance Substitute rider, his result would have been different if the purchased rider had been a Social Insurance Supplement rider.  In the case of a supplement rider, the insured's receiving a $300 Social Security disability benefit would simply cause the rider to pay the difference -- $700 in this case.

According to typical Social Insurance Benefit rider provisions, the insured must satisfy two criteria in order to receive a disability benefit under one of these riders:

The insured must file a claim for Social Security disability, and
The Social Security disability claim must be denied

If Social Security disability benefits are initially denied, the insured is usually required to appeal.  Often, the cost of the appeal will be borne by the insurer.  

The Social Security Administration sometimes reverses its position with respect to benefit awards.  As a result, a Social Security disability income claim that was previously denied may be paid and may include back payments.  In the case of most SIS riders, no repayment of previously -- received rider benefits is required.  Any subsequent rider benefits, however, would be reduced or eliminated depending upon the type of SIS rider if Social Security disability benefits continued to be paid.

Up to this point in our discussion of Social Insurance Benefits riders, we have considered only the impact of Social Security disability benefits.  Sometimes, other social insurance benefits may reduce or eliminate rider benefits. In the case of Social Insurance Benefits riders issued to applicants in the higher risk occupations, rider benefits are affected not only by the receipt of Social Security disability benefits but also by the receipt of Workers Compensation benefits.  Usually, however, the riders are identical in all other respects.

While the principal benefit of a Social Insurance Benefit rider is the additional coverage it permits, there is another benefit: reduced cost.  In cases in which the insured may add coverage under the basic policy or through a Social Insurance Benefit rider, the rider approach may reduce the insured's premium substantially.