Future Purchase Option
Definition - What does Future Purchase Option mean?
A future purchase option is a feature often specified in long-term disability insurance policies. By utilizing this option, policyholders can increase their insurance coverage each year as their income increases. The insurance company enables the policyholder to increase coverage without medical underwriting. However, the policyholder would need to pay a higher premium for the enhanced cover.
Typically, the policyholder can avail of this option regardless of their health condition. So, even if the policy develops a health condition that affects their eligibility for a new insurance policy, the lack of a requirement to pass a medical exam enables the policyholder to purchase additional cover. In many cases, the insurer provides a future purchase option until the policyholder reaches a specific age.
A 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 means to increasing the coverage over time. The insurance company determines the amount of extra coverage to provide the policyholder. For this, it considers the original coverage amount specified in the policy and the inflation rate as well.
As long as the policyholder’s age remains within the specified range, the policyholder retains the right to the future purchase option. Typically, this option enables the policyholder to increase coverage near the start of the policy term. It is worth noting that the policyholder can also increase coverage by utilizing an inflation protection rider. It increases the policyholder’s coverage over the term of the policy. Although more expensive, it often provides better coverage in the long-term.