IDI insureds often buy disability policies from agents who actually know less about the product than they do. Riders are usually very popular enhancements to base benefits, however, I recently came across a Northwestern Mutual (“NWM”) SSDI rider offered for additional premium that is absolutely worthless and not worth paying extra for.
Here’s how it works: Insureds file for disability and receive a benefit amount in addition to the base benefit. Once awarded SSDI, the insured MUST REPAY all of the money NWM fronted. Moving forward, NWM will then only pay 40% of the additional rider amount, but if the insureds has a dependent also getting SSDI, the rider pays nothing.
So…..what is it again from the rider that benefits the insured? If the insured does not have a dependent under the age of 18, then an additional benefit of 40% will be paid. However, having to PAY BACK all of the retroactive money previously paid under the Rider is a real bummer, and although it might have benefitted the insured while waiting for SSDI to be approved, having to pay it back is in reality a “penalty”.
In truth the insured paid additional premium assuming the risk of approval from SSDI and no dependents. If you put your underwriting and sales caps on, consider that the majority of IDI disability claim buyers are in the female child bearing age group where it is likely there would be dependents eligible for SSDI dependent coverage. Hence, no additional benefit would ever be paid out under the Rider.
Also, it occurs to me that since NWM only pays 40% of the additional benefit after SSDI is awarded, the Rider is in effect A HIDDEN OFFSET PROVISION. Once SSDI is awarded the additional payment under the Rider is reduced 60%! That’s really a hidden offset provision not to mention a $0 benefit if there are dependents receiving SSDI. One can’t really say that this IDI policy is “non-integrated because of the Rider.
I’m wondering if the sales agent explained this to the IDI policy buyer….I seem to think not. I can just hear the agent now…”This Rider pays you while you are waiting to receive SSDI payments.” OK, where’s the part about having to pay it all back, and receiving nothing if there is a dependent under 18? In reality, buys with under 18 dependents should never consider buying this Rider. But, I’m pretty sure the agents didn’t say that.
This is the kind of issue that should be forwarded to the State Insurance Commissions to determine whether the premium charged is worth the benefit received. I would suggest that it is not.
In the meantime, IDI insureds need to be more cautious about paying extra premium for “Riders” that are presumed to be of benefit. This particular Rider is terrible and gains the insured nothing in the end – a “No Benefit Rider.”
