What’s a Waiver of Premium Rider for Life Insurance?

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When you think about becoming disabled and losing your paycheck every month, you probably think about how devastating it would be financially for you and your family. 

Without a paycheck, you’d struggle to make your mortgage or rent payment, buy groceries each week, pay installment loans like your car payment, take family vacations, and probably have many other financial struggles. 

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One thing that many people don’t think about as being impacted by a disability is the payment of their life insurance premium. If you’ve become disabled because of an illness or accident, there’s always the possibility that it’s a life-threatening situation, and you could die as a result.

Losing the life insurance you purchased for your family’s financial protection is one of the last things you would want to happen if you were unable to work. Without life insurance, the safety net you had in place for them is gone.

Fortunately, life insurance companies developed a rider that you can add to your life insurance policy to ensure that it doesn’t lapse if you become disabled. It’s called the “waiver of premium” rider.

How Does a Waiver of Premium Rider Work?

The waiver of premium rider allows you to skip premium payments if you become disabled and can’t work for six months or longer. The waiver won’t cover disabilities caused by pre-existing medical conditions.

To use the rider, you submit a disability claim form to the life insurance company. You’ll have to pay your premiums during your waiting period, which is the time between your injury and when your rider benefits begin. Most insurers have a six-month waiting period, but you’ll want to confirm this with your agent or the insurance company. If your claim is approved, you’ll be refunded any premiums you paid during the waiting period.

Your premiums are waived for as long as you’re disabled. Once you can return to work, you’ll resume making the life insurance premium payments.

In addition to offering a waiver of premium riders for disabilities, some insurance companies also provide a waiver of premium for unemployment. It operates like a waiver of premium for a disability and prevents your policy from lapsing if you are out of work.

How Much Does a Waiver of Premium Rider Cost?

The waiver of premium rider is a flat fee and typically costs 15% to 25% of your life insurance premium. It remains the same for the life of your policy.

For example, if the monthly premium on your whole or universal life insurance

policy is $100 per month, the waiver of premium rider will cost about $15 to $25 per month. And, unlike term life insurance, the premium will never increase.

Like the premiums on your life insurance policy itself, the amount you pay for the waiver of premium rider will be based on your insurer, your age, and your health classification. When your policy is underwritten by the insurer, the underwriter for your policy will make the final determination on the premium.

How Do You Qualify For a Waiver of Premium Rider?

Once you submit a claim, it can be challenging to qualify for the waiver of premium benefit and have your premiums waived. This is because your disability has to meet the insurance company’s definition of disability, and you must be under the waiver’s maximum age limit (typically 60 or 65 years old).

To qualify for the waiver of premium benefit and meet the insurer's definition, you usually have to be totally disabled. For most insurers, this means that you’re under the regular care of a licensed physician for your illness or injury and:

  • You’re able to work but have lost sight in both eyes, or have lost two limbs; or
  • You’re unable to perform any of the duties of your current occupation (for an initial period); or
  • You’re unable to perform the duties of any occupation for which you’re reasonably qualified (after several years of being disabled).

The rules on how to qualify and which injuries aren’t covered by the waiver of premium rider will vary by insurer. Check with your agent or insurance company for specifics.

Waiver of Premium Rider vs. Disability Insurance

There’s often confusion between a waiver of premium rider and disability insurance. They’re similar in that they both provide a financial benefit while you’re disabled. You can also buy both of them as individual products or as a benefit offered by your employer.

Waiver of Premium Rider

Disability Insurance

Waives your life insurance payments

Pays a percentage of your income

A waiting period of six months or more

Waiting periods vary, but short-term disability may be as little as 14 days, while long-term disability may require 90 or 180 days

Cost is added to your premium

May be free if eligible for Social Security Disability Insurance

They’re also quite different in many respects, as shown in the graph above. The waiver of premium ride allows you to skip premium payments after the waiting period, while disability insurance pays you a percentage of your lost income. 

For example, some short-term disability policies pay benefits ranging from $500 to $10,000, depending on your income. The short-term disability insurance policy benefits usually begin being paid to you in as little as 14 days after your become disabled. It may take three to six months for a long-term disability policy to start paying you a benefit, while waiver of premium riders typically require a six-month or longer waiting period.

While waiver of premium riders aren’t inexpensive, an individually purchased disability policy is significantly more expensive, with the average cost of a long-term disability policy being 3% to 4% of your monthly income. That could add up to over $200 per month for someone earning $50,000 per year. 

Disability insurance benefits can also come from Social Security if you have enough work credits and have paid Social Security taxes on your income. However, it is tough to meet the Social Security Administration’s definition of being totally disabled; only a small percentage of people who apply for benefits are approved. 

Is a Waiver of Premium Rider Worth It?

According to the Council for Disability Awareness, the chances of becoming disabled are higher than you think. Their studies show:

  • Around 25% of today’s 20-year-olds will become disabled before they retire.
  • Accidents are NOT usually the cause. Instead, back injuries, cancer, heart disease, and other illnesses cause most long-term disabilities.
  • The average duration of a long-term disability claim is 34.6 months.

These numbers confirm that you stand a 1 in 4 chance of becoming disabled. You have to make the individual decision as to whether or not the waiver of premium rider is worth it. 

Fee-only financial advisors who don’t sell disability insurance, and can therefore remain objective, will tell you that most people are better off purchasing an individual disability insurance policy instead of adding a waiver of premium rider to a life insurance policy. 

A long-term disability insurance policy can pay benefits that will replace 50% to 70% of your income. The monthly benefit payments you receive will help you pay all of your bills, not just your life insurance premiums. Waiver of premium riders offer no income protection.

If you own an individual disability insurance policy and buy a life insurance policy, you don’t need to add the waiver of premium rider since your disability policy will be paying you enough to pay your premium every month.

Tips for Purchasing a Waiver of Premium Rider for Life Insurance

Buying a life insurance policy and deciding to add the waiver of premium rider can be stressful. However, here are a couple of things you can do to make the right decision.

  1. Work with an experienced life insurance agent or a financial planner. Someone who understands life insurance and policy riders is a valuable asset when you’re buying a policy. They can crunch the numbers and help you decide if it makes sense to purchase the rider.
  2. Use a fee-only advisor or agent when purchasing life insurance and riders. Some agents who are paid a commission if you buy a policy and riders find it hard to remain objective with their recommendations.
  3. Compare life insurance companies. Many life insurance companies today offer free quotes online, making it easy to compare rates of life insurance policies and riders as well. It’s always a good idea to get quotes from several companies before you decide on an insurer and find the best coverage at the best price.

Lock in Temporary Coverage

It can take a few weeks or more for an insurance company to underwrite your policy. During this time, you’ll be without coverage unless you submit a check with your first premium payment. By doing that, you’ll have immediate coverage and greater peace of mind. Ask your life insurance agent for details about this option. If the insurer declines to accept your application, you’ll be refunded the full amount of the premium you submitted.

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