Waiver Of Premium Rider

Many people get life insurance to provide financial security for their loved ones. But what if something unexpected happens, such as you becoming ill or terribly injured and unable to afford your premiums? A waiver of premium rider might keep your life insurance policy alive even if you are unable to pay the premiums.

What is a waiver of premium rider?

A waiver of premium rider is an optional life insurance rider that suspends your premiums without causing the policy to lapse if you become completely handicapped. The precise meaning of total disability varies, however it is typically characterized as a physical or mental condition that stops you from working.

This rider is available with most types of life insurance. According to the American Council of Life Insurers, the waiver was the most common life insurance add-on in 2021, with over 90% of active plans including it. Many policies for long-term care and disability insurance have a premium waiver rider. 

How does it work?

When you become unable to work due to a disability, the premium waiver feature is enabled. However, if you become handicapped, your insurance company is unlikely to waive your premiums immediately. Most insurers impose a six-month waiting period, which means you must wait six months after being totally handicapped before your premiums are eliminated. You must continue to pay premiums during this time, but if your claim is approved, many insurers will repay you for your waiting period charges.

After your insurer has approved your claim, you can cease paying payments, and your coverage will remain in effect. If you die during this period, the policy will pay out the entire death benefit to your beneficiaries. If you have whole or variable life insurance, the policy will continue to build cash value and dividends, if appropriate.

The rider applies differently to permanent life insurance policies with a fluctuating cash value, such as universal life insurance and variable universal life insurance. With these policies, the insurer may simply waive the cost of insurance and administrative expenditures. This keeps your policy current, but your cash value will not increase as quickly.

You will need to resume payments once you are no longer disabled. However, if you become disabled again, you can file a new claim to waive your premiums. 

The length of time the waiver is valid is frequently determined by your age at the time of disability. If you become disabled before the age of 60, many insurers will waive your premiums for the duration of your condition. Insurers often waive premiums for disabilities that occur between the ages of 60 and 65 for up to two years, or until age 65. A premium rider waiver normally ends at age 65, which means that if you become disabled after this age, you will no longer be eligible for the waiver.

Most insurers charge more to add the rider to your policy, so your premiums may reduce significantly once the waiver expires.

How to qualify

A waiver of premium rider is frequently limited to those aged 18 to 60 who have no pre-existing disability. Many insurers allow you to acquire the rider when you apply for a policy; you cannot add it later.

To activate the rider, you must file a claim that includes a statement from your doctor outlining your ailment and confirming your inability to work. If you are receiving Social Security disability benefits, a notice of award letter might assist you prove your claim. 

According to most policies, the waiver applies if your handicap prohibits you from working for at least six months. However, some insurance waive premiums if you are unable to perform your normal job.

How much does a waiver of premium rider cost?

A waiver of premium rider often raises term life insurance premiums by 10% to 25%. The exact quantity depends on age, health, occupation, and other factors like participating in high-risk activities. 

Sample monthly rates for a waiver of premium rider

These sample rates are based on a 40-year-old in good health purchasing a 20-year, $500,000 term life insurance policy with or without a waiver of premium rider.

Is a waiver of premium rider worth it?

If you have room in your budget, you might want to consider a premium waiver. The Social Security Administration believes that a 20-year-old worker born in 2000 has a one-in-four risk of becoming disabled before retirement. If you become disabled, a waiver of premium rider might help you keep your life insurance coverage while freeing up funds for other obligations.

The rider may be especially useful if you’re a young worker purchasing insurance with a long term. Younger people often pay less. It’s impossible to anticipate what will happen decades from now, but if you get a 30-year term policy at age 25 or 30, you can lock in lower premiums for the duration of the policy.

However, unlike disability insurance, a waiver of premium rider does not replace your income if you are unable to work. If you are a breadwinner, consider purchasing disability insurance to cover expenses in the event that you become ill or disabled.