A disability waiver of premium rider helps ease any potential economic burdens after a disability has been sustained by waiving the cost of life insurance and guaranteeing a monthly income for the insured and their loved ones.
More specifically, a disability waiver of premium rider goes hand-in-hand with a disability income rider.
In either case, an injury or illness, whether unforeseen or not, readily prevents the insured from working at their normal occupation and therefore making a living.
This results in what is referred to as a total disability, which could, in turn, cause financial hardship for the insured and their family.
Below, we’ll detail how this rider works and weigh whether it could be beneficial for you and your family.
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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 for years to come.
Unlike the base policy on its own, this rider offers benefits to the policyholder while they are still living, which is why it’s also known as a living benefit.
In short, if the insured becomes disabled, the rider ensures they will not lose life insurance coverage since the insurer will cover the cost of the premiums.
If the insured has secured some form of term life insurance, for example, it means their policy stays current. Even if they have a permanent life insurance policy, the same condition applies.
In the case of universal or whole life insurance, even the cash value will continue to accumulate over time. If the insured is earning dividends off of the policy, they will go on receiving them.
The insured can borrow against the whole life policy, too.
So long as the insured is diagnosed as disabled, the policy premiums are paid by the insurer, and the guaranteed death benefit cannot lapse.
The policyholder’s insurance will continue to function as if he or she is making the payments on their own.
The disability waiver of premium rider provides an extra layer of financial security for the insured so they can instead focus on recovery and overall quality of life.
Even if the policyholder ends up making a full recovery, premiums will still be taken care of by the insurer. In this case, the insurance company will not require any retroactive payment of premiums by the policyholder.
What are the Criteria for a Disability Waiver of Premium Rider?
An insured individual can purchase this rider on a life or disability insurance policy.
The cost of the provision depends on several relevant factors. As with most general life insurance policies, the insured’s occupation, age, and health will affect the cost of the premium.
These factors can also vary with the type of life insurance the individual already has. The rider will typically run about 10 percent of the cost of the life insurance premium.
There is also an age limitation on a disability waiver of premium rider, which is usually around 60 or 65 years of age.
It’s crucial to understand the benefit will begin to pay after an initial waiting or elimination period has passed.
This time frame can vary from 90 days to 6 months, depending on the policy in question.
While a longer waiting period means a smaller premium, the insured must be able to continue making payments during this time.
How Does the Insurance Company Define Disability?
First of all, the insured must be working at the time the disability occurred to receive any sort of benefit.
As would be expected, insurance companies vary in their specific definitions of total disability, so it behooves the insured to understand the precise definition their insurance provider adheres to.
Generally, disabilities could range from loss of mobility, in some capacity, (such as losing a limb) to sensory loss (such as hearing impairment). These disabilities could result from a sustained injury or stem from an illness.
On the flexible end of the scale, an insurer may utilize the term“own-occupation disability,” the definition of which applies to the current situation and the insured’s work role.
In simple terms, it means an injury or illness prevents the insured from performing the job they were trained to do.
This definition does provide some flexibility, though.
For example, an individual may lose the ability to work a construction job, but can easily obtain a job in the retail industry.
It is then possible for the individual to continue working and still receive the disability waiver of premium on their insurance plan.
So, in this way, the disability doesn’t have to be classified as a permanent total disability where the insured definitively loses their ability to work.
The defined disability must simply impact the policyholder’s work performance in some genuine capacity.
How Does Disability Affect the Waiver of Premiums?
When it comes to how disability definitions affect the waiving of insurance premiums, the precise wording chosen is vital.
For example, the above scenario may not apply if the policy has an “any-occupation” or “modified own-occupation” disability definition.
Many insurance companies will state the trigger for the policy to kick in is the diagnosis of a total disability. Anything less than a total disability may mean the insurer will not waive the policyholder’s insurance 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 happens to be a chronic condition, the insured will not have to go through an additional waiting period with each recurrence.
However, there could be the possibility of a waiting period or elimination period to confirm a disability, and the insured will have to pay the premiums in the interim.
This waiting period is standard among most insurance companies.
It’s also worth noting that 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.
Is a Disability Waiver of Premium Rider Right for Me?
Becoming disabled, whether unforeseen or not, can present both economic and emotional hardship for an individual and their family due to the loss of steady income.
The risk of a life insurance policy which could lapse because of the inability to pay premiums only adds to these financial burdens.
A disability waiver of premium rider can ensure a policyholder will not lose the benefits of their life insurance coverage.
But, it’s essential to know the precise terms and conditions of what constitutes a disability and any limitations or exclusions before purchasing this provision.
Depending on the insurance provider in question, your situation may end up not even qualifying under this rider.
However, if life insurance is essential for an individual managing a disability, a disability waiver of premium rider would certainly prove a sound investment.
To find the best deal for your budget, check out insurance offerings from different reputable providers. Or, if the disability waiver of premium rider isn’t the best fit for your situation, check out other comparable riders.