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A common disability insurance rider (add-on) is the student loan payment protection rider. Let’s learn more about this rider.
What does the student loan payment protection rider do?
If you become totally disabled, this rider will pay additional funds to your student loan provider to help with monthly payments. This rider only kicks in with a total disability. It does not provide a payment if you only receive residual benefits. The monthly benefit could range from $100 to as much as your standard disability benefit amount. This will depend on your insurance company and your benefit selection. The benefit period can be either 10 or 15 years from the policy inception date. An elimination period applies, just like in the base policy.
How much does the student loan payment protection rider cost?
The additional cost of the rider will depend on your insurance provider and the amount of the benefit. Guardian will allow a student loan benefit as high as the standard benefit on the policy. This increases the premium by up to 33%. Mass Mutual allows a maximum student loan rider of $2,500 which increases the premium by about 10%. Ohio National allows a maximum student loan rider of $3,000 which increases the premium by about 10%.
Should I accept the disability insurance student loan payment protection rider?
It depends on what your plans are for repayment of your student loans.
If your loan balance is less than your income, the most financially optimal repayment method is likely privately refinancing the loans at a lower interest rate and aggressively repaying. The student loan rider could be of benefit to you here because private lenders have stricter rules and are less forgiving than the federal government. Private lenders are less likely to grant a pause on payments or reduction in payments. You could use the extra support here if the private lender was not willing to be flexible.
If your loan balance much greater than your income, the most financially optimal repayment method might be using an Income Driven Repayment (IDR) plan to pay as little as possible on the loan over time and receiving taxable forgiveness. When using the IDR plans, your student loan payment is based on your income. If you were to have any reduction in income due to disability, there is protection already built into the plan. Plus, your goal with taxable forgiveness is to pay as little as possible over time. An additional student loan rider payment would be unnecessary.
Summary
The decision to use the student loan payment protection rider depends on your plan for student loan repayment.
If you have a lower student loan balance and plan to pay the loans back in full, this benefit could come in handy. If you have refinanced with a private lender, they will be less likely to pause or lower payments in your time of need. Having extra insurance would be of great benefit if you were to become disabled.
If you have a large student loan balance and are planning for taxable forgiveness, this benefit can be skipped. When using an IDR plan, your payment will adjust based on your income. Extra payments are not needed since your goal is to pay as little as possible ahead of forgiveness.