Disability Automatic Increase Provision

A Disability Automatic Increase Provision is an optional add-on to a long-term disability insurance policy that allows the policyholder to automatically increase their coverage each year without providing evidence of insurability. Here are the key features of this provision:

• Automatic coverage increase: With this provision, the policyholder's disability benefit amount will increase each year without requiring additional underwriting or evidence of insurability. The amount of the increase is usually a predetermined percentage, such as 3% or 5%.

• Annual adjustment: The automatic increase in coverage typically occurs on the policy anniversary date each year.

• Limitations: There may be limitations to the amount of coverage that can be automatically increased, such as a cap on the percentage increase or a maximum dollar amount.

• Premiums: As the policyholder's coverage increases, their premiums will also increase to reflect the higher benefit amount.

• Eligibility: The policyholder must be eligible for the automatic increase provision, which typically requires that they have been insured under the policy for a certain period of time and be under a certain age.

Example: Let's say that a policyholder purchases a long-term disability insurance policy with an Automatic Increase Provision. The policy initially provides a monthly benefit of $5,000. The provision stipulates an annual increase of 3% to the benefit amount. At the end of the first year of coverage, the policyholder's monthly benefit amount would increase to $5,150 ($5,000 x 1.03). The following year, the benefit amount would increase again to $5,303.50 ($5,150 x 1.03). This increase would continue each year until the policyholder reaches the maximum benefit amount allowed under the policy or the automatic increase provision. The policyholder's premiums would also increase each year to reflect the higher benefit amount.