The waiver of premium rider isn't something I used to talk about very much. However, one day I got a phone call from a lady whose husband had a life insurance policy with me.
She explained to me that her husband had been working on the roof of their house and fell. My first thought was that he had died in an accidental fall but instead she told me he broke his back and was paralyzed. She had heard of waiver of premium before and wondered if he had this option on his policy.
In this particular case, if he had added the waiver of premium to his policy, his premiums would have been paid for the rest of his life. But since he didn’t have it, he’d have to continue making his premiums.
This would be a lot harder to do now that he couldn’t work.
After my conversation with her, it reminded me to make sure everyone knows about the waiver of premium rider when they buy a policy from me. I then let them decide for themselves if they want to add it.
So, in this article, I wanted to talk about what waiver of premium is, the two different types of waiver of premium offered and in general how it works.
What is waiver of premium?
Waiver of premium is a rider you can add to your life insurance policy for an additional premium. If you are totally disabled and qualify, the insurance company may pay the premium for you.
What is the difference between waiver of premium and total permanent disability benefits?
It's easy to get confused between waiver of premium and a disability income benefit. The difference is that waiver of premium only pays your life insurance premium. A disability policy pays you a portion of your income in the event of a disability.
Two types of waiver of premium
There are two type of waiver of premium available. The difference between the two types is who has to get disabled in order for the waiver of premium to pay a benefit.
Here are those two types:
- Insured Waiver of Premium The first type of waiver of premium is if the insured gets disabled. For example, you buy a policy on yourself and add waiver of premium. In order for the waiver to pay a benefit, you as the insured have to be the one with the disability.
- Payer Waiver of Premium The second type of waiver of premium is called payer waiver of premium. This is sometimes called payor waiver of premium. No waiver benefit would be paid if the insured gets disabled. You as the payer would have to be disabled in order to qualify. This is usually used in case you buy a policy on a family member like your spouse or a minor child and are the person paying the premiums.
I see payer waiver of premium offered more in the workplace than individually. That's because if you buy life insurance through work and you get totally disabled, you - the payer - are still required to pay the premiums.
How long will the insurance company "waive" or pay the premium?
The length of time the insurance company will pay your premium while you are disabled varies from policy to policy. If you qualify, it could be just for a limited time or for the life of the policy.
What is the waiver of premium waiting period?
If you are disabled, waiver of premium doesn’t kick in right away. You usually have to wait at least 6 months before you can apply. You’ll have to continue paying the premium until you do qualify.
The waiver of premium benefit is designed for situations that involve a total disability. This means if you hurt your shoulder and are only disabled for a couple of months, you won’t qualify for payment under a waiver of premium rider since it didn't last longer than 6 months.
Is there a pre-existing condition clause or other limitations or exclusions?
For a disability due to a medical condition, there may be a pre-existing condition clause. Keep in mind, that a pre-existing condition may prevent payment.
It's possible that their could be other exclusions and limitations. A good example might be a self inflicted injury. These are things you'll want to find out.
Group life insurance and waiver of premium at work
If you have group term life insurance, a waiver of premium benefit may be available. You'd want to check the group certificate to see if and how it's covered.
Read the actual waiver of premium provision in the life insurance contract
A waiver of premium provision will be different from insurance company to insurance company. The only way to find out what your waiver of premium benefit would cover is by reading your contract.
Whenever in doubt about how any provision of an insurance contract works, you have to read the policy.
Is the waiver of premium benefit worth it?
Whether it's worth it to add the waiver of premium benefit depends on several factors and how old you are.
Here are some things I would look for:
- Are you concerned about becoming disabled? Are you at a greater risk of becoming totally disabled either because of medical conditions or your activities? Here's and article that talks about the chance you'll become disabled and other risk factors.
- How long will the waiver of premium benefit period be? You'll have to look at the contract to see how long the benefit period would be in the event of disability.
- How old are you now? Waiver of premium may only be available for certain ages. You might not be able to add it or if you can, it might have a limited benefit.
- How much does it cost? How expensive is the waiver in relation to the premium? Can you afford the extra premium?
- Can you afford the base life insurance premium if you get totally disabled? Do you have enough money to pay the premium if you did get totally disabled?
- Do you have other disability insurance? Do you have long term disability insurance? How long would it last and how much would it pay?
You'll want to read the waiver of premium benefit provision in the life insurance policy you buy. You can either do this by reading a policy specimen your agent can provide before you buy it. Or, you can read the provision in your policy after you get it to see how it works for sure.
Can I add waiver of premium or drop it later if I want to?
I often get asked if you can add waiver of premium (or other riders) later after you have already bought your life insurance policy. The answer is usually no.
You can always drop a life insurance rider through a contractual change down the road. If you aren't sure, I'd lean toward adding any riders you are interested in at the time you buy the life insurance.
You can always evaluate it closer after you get the policy.