A waiver of premium rider allows you to stop paying premiums on your life insurance if you have a qualifying disability. It is typically an optional add-on rider that helps prevent a lapse in coverage due to non-payment while you are disabled.
Being disabled introduces a slew of financial hardships into your life. The biggest benefit of a waiver of premium life insurance rider is eliminating one expense (the life insurance premiums) and retaining your life coverage.
In this post, you will learn all about a waiver of premium rider, how it works, and if it is right for you.
Key Takeaways:
- A waiver of premium rider is a type of life insurance rider that will waive premium payments if you become disabled with a qualifying condition
- Waiver of premium riders save you an additional expense if you become disabled and allow you to retain life insurance coverage
- If your premium is waived, the life insurance policy will continue to behave as if you were continuing to pay premiums. Your cash value, death benefit, and all aspects of the policy will remain growing on schedule as if you were paying premiums.
- Some insurers may offer waiver of premium as a free rider, but more often it is an optional add-on rider that comes with a fee
- You can use your waiver of premium benefit more than once if you become disabled again.
- There may be an elimination period before you receive any funds, and some waiver of premium riders will reimburse you the premiums you paid during this period.
What Is A Waiver Of Premium Rider?
A waiver of premium rider allows you to stop paying premiums on your life insurance if you have a qualifying disability. It is typically an optional add-on rider that helps prevent a lapse in coverage due to non-payment while you are disabled.
Waiver of premium riders usually have an elimination period before they begin. This period can be 6 months or longer, and during this time you need to keep paying your premiums. However, after the elimination period, you may get reimbursed for premiums paid during the period.
Waiver of premium riders allow you to eliminate an expense while disabled while also ensuring you can retain your coverage to protect your loved ones.
What Is Life Insurance?
Life insurance is a product that pays a death benefit to your beneficiaries if you die. You pay premiums to the insurance company for the coverage. Life insurance is a key component of the protection pillar of the 5 pillars of personal finance.
There are many different types of life insurance with the primary types being term insurance and permanent insurance. Waiver of premium riders can be on both types of life insurance.
What Is A Life Insurance Rider?
Life insurance riders are add-on features to your life insurance policy. These features allow for customizing your policy to better fit your need. Some life insurance riders come standard on policies while others are optional and can be added for an additional fee.
There are many popular life insurance riders that help in case of injury, accidental death, or to increase the value of the policy. Each insurance company creates its own riders and each product has different riders available to it. It is important that you read your policy documents to make an informed choice about optional rider purchases.
What Are The 6 Benefits Of A Waiver Of Premium Rider?
Waiver of premium riders are a useful rider if you become disabled. Some benefits of the waiver of premium rider include:
1) Decrease Expenses If Disabled
Being disabled can be a huge financial strain as physical ailments can wreak havoc on your life. You and your family may experience major medical costs, mental anguish and stress. Remembering to pay another bill and also having the money available to pay the bill can get tough. Especially if you are out of work and have higher medical bills.
Unfortunately, life insurance can be one of those items that is deemed less important and coverage gets dropped. Being able to eliminate one of your expenses, your insurance premiums, can be a huge benefit.
2) Policy Lapse Prevention
Another key benefit of the waiver of premium rider is preventing the policy from lapsing. A ‘lapse’ is when you stop making adequate premiums and your insurance policy gets terminated. If being disabled makes you unable to pay your life insurance premium, you could lose your coverage.
Since being disabled may cause you to dip into your savings and retirement money, you want life coverage to protect your loved ones in case you die.
3) Policy Continuation
Most waiver of premium riders allow for the policy to continue on as if you were paying the premiums. This means the cash value of the policy continues to grow. If you are able to return from disability and resume paying premiums, you will still be on track for your financial goals.
4) Protection of Financial Security
You purchased life insurance as part of your personal financial plan. Being disabled probably caused many impediments to your plans. Being able to keep your life insurance coverage for free can help with your overall financial security.
Life insurance is there to protect your loved ones and keeping it ensures your family is taken care of.
5) Low Cost
Waiver of premium riders often are included as part of your policy. Even if they are not free, the price of waiver of premium riders tend to be relatively low.
The biggest expense to the insurance company is your death benefit. Missing months of premium payments are small relative to paying out your death benefit.
For example, term policies may only cost a few hundred dollars a year for $100,000s of coverage. Even permanent insurance which costs 5 to 15 times term for similar coverage, is still fractions of the death benefit. Since the cost of waiving premiums is relatively small, and the risk of disability for more than 6 months is low, the insurance company doesn’t need to charge much to offer the rider.
Waiver of premium riders typically cost ~15% of your premium, though may be more if the rider is more generous. And the cost will vary depending on your underwriting.
6) Can Use It More Than Once
Nearly all waiver of premium riders allow for you to use the rider as many times as you qualify. This means it isn’t a one time use that you need to be concerned about choosing if you have a chronic qualifying condition that may cause future disabilities.
You may need to go through the elimination period each time however. Or if it is a continuation of a previous disability that occurs in a short enough period, your insurer may waive the elimination period.
If you have been disabled, the chance of re-injury is increased. Therefore, knowing your benefit is there after your first disability bout provides continued peace of mind.
Do You Need A Waiver Of Premium Rider?
No one plans on becoming disabled. However, one out of four adult Americans live with a disability, that is 61 million people in the USA.
As such, having a waiver of premium can be immensely valuable if you become incapacitated. It can help you avoid some financial hardship while you are disabled while ensuring your loved ones remain protected. This is especially true as the cost of a waiver of premium rider can be relatively low.
However, you don’t need to pay for the rider if you have other disability insurance or protection. Everyone’s financial situation is different and all decisions should be specific to your needs. Therefore, you may decide you don’t need the rider.
Why You May Need A Waiver Of Premium Rider?
Waiver of premium riders can be useful for most people, however some people may especially need the rider. Some examples of people who may want to strongly consider the waiver of premium rider are those who:
- One Source of Income – If your household only has a single source of income, it may be wise to get the rider. A disability may be more catastrophic in single income homes as all income stops.
- High-risk profession – There are some occupations that have a higher risk of on-the-job injuries: firefighter, construction, police, etc.
- High-risk hobby – Risky hobbies can lead to serious injuries. But even a weekend warrior can get injured with their off-the job hobby
- Family history – if you have a family health history with debilitating conditions, you may want this extra protection
How Does A Waiver Of Premium Rider Work?
Each life insurance policy and rider works differently. However, most waiver of premium riders require a waiting period, usually around 6-months. This is called the elimination period and you must be continuously disabled for the entire period before the rider goes into effect.
Once the waiting period is over, the insurance company will waive all future premiums. The insurer often will pay back the premiums you paid during the elimination period
However, all riders are unique and you should refer to your plan documents for specifics on your policy.
What Will Your Experience Be After Activating Your Waiver Of Premium Rider?
In general, when you get injured with a qualifying disability, you will inform your insurance company. Some insurers use the date of the injury, the date of the disability diagnosis, or the date of you filing a claim with the insurer to start the elimination period. Therefore, you will want to promptly reach out to your insurance company if you get injured.
After filing your claim, you will need to continue to pay premiums during the elimination period. You may need to periodically show proof of your continued disability to your insurer during this period as well.
Once the elimination period is over, the insurance company will inform you that you no longer need to pay premiums. They may require more periodic proof of disability during this time.
Once you are cleared to return to work, you need to inform the insurer and will become responsible for paying your premiums again.
For example, if you have a waiver of premium rider with a 6-month elimination and reimbursement. And you get injured in January, get a qualifying disability diagnosis from a doctor and inform the insurance company. Then from January to June you continue making your payments. If you are still disabled in July, the insurer will waive future premiums and reimburses you for the 6 months of premiums you paid.
If you get cleared to return to work in September, you would need to inform your insurer and resume premium payments at that time.
Typical Requirements For A Waiver Of Premium Rider
Generally, waiver of premium riders are only available during regular working ages. This means the insurance company may specify an age 60 to 70 where premiums are no longer waived if you become disabled. This cut-off will be binding even if you were or planned to work past retirement age.
Downsides To A Waiver of Premium Rider
There are some potential downsides to waiver of premium riders. First, although some riders are included with your policy, there may be a fee for the waiver of premium rider depending on your life insurance.
Additionally, the definition of disabled varies between insurers and riders. Some waivers go into effect if you can’t do your regular job. Others may require your disability to prevent you from doing any job. Others may have an initial period where you can’t do your regular job, but after this period the waiver only remains in effect if you can’t do any job you are qualified for.
This means some riders may not go into effect if you can do a low-paying task like work the front desk of a business or do data entry from home.
Third, your insurer may have a cut-off age for the rider. If your rider only covers you to age 60, and you get disabled at 62, you would not qualify. This means even if you were still working or plan to continue working, you still wouldn’t have your premium waived.
Fourth, your waiver of premium rider may have a narrow scope that excludes events that are typically included in disability insurance policies. For example, child birth is often a qualifying condition for a disability insurance payment but not eligible for waiver of premium.
Lastly, if you have certain pre-existing conditions, you may not be eligible for a waiver of premium rider.
Waiver Of Premium Rider Vs. A Disability Insurance Policy
Waiver of premium riders and disability insurance are similar as both provide financial assistance if you become disabled.
But a waiver of premium rider can’t be stand alone and has to be attached to a life insurance policy. Disability insurance is its own separate policy.
Additionally, waiver of premium only excuses you from making payments on your life policy. It doesn’t pay you any money for being disabled like disability insurance.
Disability insurance also typically has a shorter elimination period to qualify for short-term disability payouts. Short-term disability payments may kick-in as early as 14 days after the injury. Disability insurance may also have a higher long-term disability payout that starts after 3 to 6 months. This is when your disability is considered a long-term disability.
Whereas most waiver of premium policies have a longer elimination period, typically 6 months. Although, your policy may reimburse you back premiums to the time of the injury.
Disability insurance often has more qualifying conditions, including events like missing work for child birth, that are typically not included in waiver of premium riders.
Disability insurance may be offered through your employer at no cost. However, if you have to purchase a disability policy it will typically be more expensive than adding on a waiver of premium rider.
The Final Word
A waiver of premium rider is usually a beneficial rider to include on your insurance policy. There are numerous benefits provided for no or a fairly low cost. But in the event of incapacity or catastrophic disease, the rider can provide immense value to you.
There are some downsides to a premium waiver rider and you should review any policy documents to ensure it fits into your financial needs.
Frequently Asked Questions (FAQs):
A waiver of premium rider allows you to stop paying premiums on your life insurance if you have a qualifying disability. It is typically an optional add-on rider that helps prevent a lapse in coverage due to non-payment while you are disabled. It is also known as a waiver of premium for disability.
There are 6 benefits to a waiver of premium rider:
1) Decreased expenses if disabled as you are able to avoid making premium payments
2) Policy lapse prevention means your policy will remain active
3) Policy continuation, including cash value growth, despite not paying premiums. This means you can continue with your life insurance plans if you return to work.
4) Protection of financial security as your get to keep your life insurance to protect your loved ones
5) Low cost – since it is a low cost to the insurance company, most premium waiver riders are cheap
6) Not one time use – if you have re-occurring condition you can use this rider for each one.
There are many benefits to a waiver of premium rider, however there are some potential downsides:
1) May require a fee to be paid for coverage
2) The definition of disabled varies between insurers and riders. Some riders cover you being unable to work your current job, while others may require you to no be able to perform any job
3) There may be a cut-off age for the rider, typically 60 to 70, which may be less than your current age or planned retirement date
4) There may be limited conditions covered to qualify for waiver of premium benefits
5) May not be available if you have pre-existing conditions
An elimination period is the time between when you are disabled and when the benefit of a policy takes effect. The elimination period is often 6 months for a waiver of premium rider, but will vary between policies. During the elimination period you must continue to pay your scheduled premiums, although many riders will reimburse you. Also, the elimination period may start based on the date of injury, date of disability diagnosis, or the date of reporting the condition to the insurer. As such, you should promptly report your condition and be familiar with your plan documents.
Waiver of premium riders are add-ons to a life insurance policy and waive future premiums if you become disabled. Whereas stand alone disability insurance pays you a benefit if you become disabled.
Other differences include:
1) Waiver of premium tends to have a longer elimination period
2) Waiver of premium often covers less disabilities, for example child birth
3) Disability insurance doesn’t have a life insurance component