What’s an AIO and Why Should You Care?

An AIO is an acronym for an Automatic Increase Option.  It provides an opportunity to increase your disability coverage as your income increases, without medical underwriting.  In other words, an AIO allows you to increase coverage regardless of your future health situation.  This can be an especially attractive feature for many young physicians who have not yet reached their peak earnings potential.  Most will experience a significant increase in annual income as they transition from residency into practice, so most insurers offer a provision in their disability contract that allows the insured to increase coverage commensurate with their income.

You may hear this feature called by other names, such as a Future Purchase Option (FPO), a Future Increase Option (FIO), or a Guaranteed Insurability Option (GIO).  But the premise is the same.  It allows the insured to increase their benefit without evidence of insurability, but it must be justified by an appropriate increase in income.

Some policies include an increase option as part of the contract while others offer it as an additional rider.  Either way, insurance company’s typically ‘price’ the cost of the feature into their coverage.  If included in the base contract, the cost will likely be absorbed as part of the base premium.  If the feature is offered as a rider, the cost is usually shown as an added charge to the base premium.  But either way, the insurance company is charging a higher premium for this feature.

Why is this feature important?  If you develop a health condition the cost of additional coverage is likely to be much more expensive.  Or, the coverage might be rated with an exclusion – where certain medical conditions are excluded from future claims.  That means if a disability claim is triggered by the excluded medical condition, no benefits would be paid under the terms of the contract.  Think of it this way, health typically declines with age.  So today is likely the healthiest you’ll ever be.  Purchasing a guaranteed insurability option today – while you’re healthy – guarantees you the right to purchase more coverage in the future, in the event your health declines.