Future Purchase Option
What Does Future Purchase Option Mean?
A future purchase option is a feature commonly included in long-term disability insurance policies. By utilizing this option, policyholders can increase their insurance coverage each year as their income grows. The insurance company allows the policyholder to increase coverage without requiring medical underwriting. However, the policyholder would need to pay a higher premium for the increased coverage.
Typically, the policyholder can take advantage of this option regardless of their health condition. This means that even if the policyholder develops a health issue that would normally affect their eligibility for a new insurance policy, the absence of a medical exam requirement allows them to purchase additional coverage. In many cases, the insurer offers a future purchase option until the policyholder reaches a specified age.
The future purchase option is also known as a future increase option or guaranteed insurability.
Insuranceopedia Explains Future Purchase Option
A future purchase option is one way to increase coverage over time. The insurance company determines the additional coverage to offer the policyholder, taking into account the original coverage amount specified in the policy and the inflation rate.
As long as the policyholder’s age remains within the specified range, they retain the right to exercise the future purchase option. Typically, this option allows the policyholder to increase coverage early in the policy term. It is also worth noting that the policyholder can increase coverage by using an inflation protection rider, which increases coverage over the term of the policy. Although it may be more expensive, an inflation protection rider often provides better long-term coverage.
