Your life insurance policy helps ensure your loved ones are financially protected, no matter what the future brings. However, it’s important to have a plan that keeps your policy active, even if you face an unexpected illness or injury that makes it hard to pay your premiums.
Adding a waiver of premium rider to your policy, usually for a modest additional fee, can help safeguard your coverage. You can then fully focus on your recovery without having to worry about whether your life insurance will lapse. Here are the key details to understand.
What Is a Waiver of Premium?
A waiver of premium rider is an optional add-on to your life insurance policy that covers your premiums if you can’t work because of an injury or illness. Accordingly, it allows you to keep your policy in force even if you have a reduced income and would otherwise be unable to make your payments.
You can add a waiver of premium rider to a term life insurance policy, which covers you for a certain number of years, or a permanent policy. If you own a whole life policy or other type of permanent coverage, this optional feature prevents your policy from lapsing and ensures your cash value continues to grow.
However, if you have a standalone disability insurance policy, you may find that a waiver of premium isn’t necessary. If your disability coverage is sufficient, you can use your benefit amount to pay for your life insurance premium—plus any other expenses you experience while you’re out of work.
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Who Is Eligible to Purchase a Waiver of Premium Rider?
Each insurance company has its own eligibility guidelines for those wishing to add a waiver of premium option. To purchase this optional benefit, you may need to meet a few requirements.
Age
Some insurers prevent you from buying a waiver of premium before age 55 or 60.
Health
You may need to establish that you’re not currently disabled and that you’re in good health.
Occupation
It may be harder to buy a waiver of premium if you have a high-risk job or hobby, such as skydiving or mountain climbing.
How a Waiver of Premium Works
If you experience an injury or illness that prevents you from working, you’ll need to file a waiver of premium claim with your insurer. The rider covers your premiums if you meet the provider’s definition of “totally disabled.” Usually, that means you’re seeking medical care for your condition and can’t perform your current job. After a certain number of years, some insurers will only cover your premiums if you can no longer engage in any occupation you’re qualified for.
Even if you’re eligible to use the waiver, you’ll need to go through a waiting period—typically six months from the claim date—before the insurer covers your premiums. After that waiting period, most companies reimburse you for any premiums you’ve paid in the meantime. Often, the waiver lasts for as long as you’re disabled or until you reach a specific age, such as 65.
If you’re considering adding a waiver of premium to your policy, know that timing can be critical. Most life insurance companies require you to purchase this add-on when you first take out your policy, rather than allowing you to buy it later. Ask your provider for its rules.
Pros and Cons of a Waiver of Premium Rider
A waiver of premium can give you confidence that a future health issue won’t leave your family unprotected. However, carefully weigh the advantages and potential drawbacks before adding one to your life insurance policy.
Pros
Continued Coverage
Your policy stays in force, even if you can’t work for a significant time.
Cash Value Protection
Because your policy remains fully funded with the rider, you continue to grow cash value.
Peace of Mind
The assurance that your policy will remain active gives you one fewer issue to worry about as you work on your recovery.
Cons
Cost
The average waiver of premium can typically add $10 to $50 per month to a policy’s cost. That amount can vary based on your age, health, and coverage amount.
Eligibility Limitations
If you’re over a certain age or have a complex medical history, you may not qualify for the rider.
Coverage Limits
Every insurer has its own guidelines for what qualifies as a disability. If you don’t meet the exact criteria, the insurer may not waive your premium.
Not Always Needed
If you have a robust disability insurance policy, you can use your payouts to pay your life insurance premiums instead.
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