Future Purchase Option

A future purchase option is a feature of long-term disability insurance that allows policyholders to increase their insurance coverage annually as their income increases, without medical underwriting, in exchange for paying a higher premium.

The future purchase option is typically valid until the policyholder reaches a specified age. The future purchase option means that even if a policyholder develops a health condition that would make it expensive or impossible to qualify for a new policy, they can purchase additional coverage under their existing policy because the future purchase option does not require the policyholder to pass a medical exam.

Future purchase options are also called “future increase options” or “guaranteed insurability.” 

The future purchase option is also available with long-term care insurance, which is designed to cover extended nursing care costs, such as a long stay in a nursing home. The cost to purchase extra insurance through the future purchase option depends on the policyholder’s age. Also, the insurance company decides how much extra coverage to issue based on the policy’s original coverage amount and the economy’s inflation rate.

The additional cost for a future purchase option is usually fairly low, making up approximately 2 percent of the total policy cost. Every 2 to 3 years, the policyholder will be offered the option to increase the daily benefit amount on their policy. This presents an ideal situation if, for example, they become ill or are able to afford higher premiums later on down the road.

A future purchase option is not the only way a policyholder can increase their coverage over time; another option is an inflation protection rider, which serves a similar purpose. In fact, many brokers will recommend inflation protection for younger customers because it increases the value of a policy's benefits over time, keeping pace with inflation, so if and when they ever need care, benefits will still cover the increased cost.

The future purchase option may have favorable pricing but only lets the policyholder increase coverage near the beginning of the policy term, whereas an inflation protection rider will cost more but continually increase the policyholder’s coverage over the course of the term. In addition, if a policyholder declines to take advantage of the future purchase option when the insurance company offers it, it might not be offered again. Note that practices vary among insurance companies. Purchasing inflation protection can be more expensive, but may provide better coverage in the long run. If the policyholder can afford the additional cost, purchasing some type of protection against inflation is usually a good idea, especially in the case of a long-term care policy, since health-care costs have been rising significantly faster than the cost of living.