The disability waiver of premium rider goes hand-in-hand with a disability income rider.
In either case, an injury or illness prevents the insured from working at his normal occupation. This results in a total disability which can, in turn, cause a financial hardship.
These add-on provisions help ease the economic burden by waiving the cost of life insurance while guaranteeing a monthly income.
How Does a Disability Waiver of Premium Rider Work?
Riders add supplemental coverage to a standard life insurance policy to create a customized product for the insured.
Unlike the policy on its own, this rider offers benefits to the individual while he is still living. In short, if he becomes disabled, the rider ensures he will not lose his life insurance because the insurer will pick up the cost of the premiums.
If he has term life insurance, for example, it means his policy stays current. Even if he has permanent insurance, the same condition applies. So long as he is disabled, the policy premiums are paid by the insurer, and the death benefit cannot lapse.
His insurance will continue to function as if he is making the payments on his own. In the case of a universal or whole life, even the cash value will continue to accumulate. If he is earning dividends off of the policy, he will go on receiving them. He can borrow against the policy too.
Criteria for a Waiver of Premium Rider
An insured individual can purchase this provision on a life or disability insurance policy.
The cost of the rider depends on several factors. As with life insurance on its own, the insured’s occupation, age, and health will affect the cost of the premium. It will also vary with the type of life insurance the individual has. It will typically run about 10 percent of the cost of the life insurance premium.
There is an age limitation on a disability waiver of premium rider which is usually around 60 or 65 years.
It’s crucial to understand the benefit will begin to pay after an initial waiting or elimination period. This time frame can vary from 90 days to 6 months, depending on the policy. While a longer period means a smaller premium, the insured must be able to continue making payments.
Defining What A Disability Is In The Eye of the Insurer
The insured must be working at the time of the disability to receive a benefit.
Insurance companies vary in their definition of total disability. It behooves the insured to understand the precise definition. On the flexible end of the scale, an insurer may define “own-occupation disability.” This definition applies to the current situation and the insured’s work role.
It means an injury or illness prevents the insured from doing the job for which he was trained. This definition provides some flexibility.
For example, an individual may lose the ability to perform a construction job but can easily obtain work in a retail position. It is then possible for the individual to continue working and still receive the disability waiver of premium on his insurance.
The precise wording is vital. This same scenario may not apply if it has an “any-occupation” or “modified own-occupation” disability definition. Many insurance companies will state the trigger for the policy to kick in is a total disability. Anything less may mean the insurer will not waive the premiums.
If the criteria are met, the insurance company will honor the claim.
The provision will continue to waive the life insurance premium as long as the disability persists, or until the term of the policy matures. If the disability is a chronic condition, he will not have to go through an additional waiting period each time.
There could be a possibility of a waiting period, or elimination period to confirm a disability, as well.
And the insured will have to pay the premiums in the interim. This waiting period is standard among insurance companies.
It’s worth noting many insurance companies will include a periodic review of the insured’s disability status as part of the conditions of the disability waiver of premium rider.
Therefore, it’s essential to know the precise terms and conditions of a disability and any limitations before purchasing this provision. If life insurance is essential, a rider is a sound investment.
You Should Consider The Disability Waiver of Premium
Becoming disabled can present an economic hardship for a family because of the loss of income.
The risk of a life insurance policy which could lapse only adds to the financial burden. A disability waiver of premium rider can ensure an individual will not lose insurance coverage while still receiving the benefits of a permanent life insurance policy.