5 things you should know about the waiver of premium rider

If you are thinking about buying a life insurance policy, you already know that protecting your loved ones is a top priority. Life insurance coverage helps provides a financial safety net if anything happens to you, which makes securing the right coverage a critical step when you have a partner, kids or anyone else who relies on your income.

Buying a quality term life insurance policy is no longer complicated, but there are still a few details you must consider in order to ensure you buy the right coverage for you.

One of the decisions you need to make is whether or not to add any riders to your life insurance policy. These optional benefits can be added to personalize your policy and better meet your needs. However, they often add an extra cost to your premium each month, so if you’re considering adding any paid riders to your policy, you’ll want to make sure they’re actually right for you.

Riders like convertibility, accelerated death benefit and disability waiver of premium are some of the common ones you’ll come across.

Depending on your needs, the waiver of premium rider could be an excellent addition to your life insurance policy. Find out what every insured person should know about the rider before purchasing it.

Contents

1. What is the waiver of premium rider?

The waiver of premium rider — also known as a waiver of premium for disability — is an optional add-on to your policy that helps prevent your life insurance coverage from lapsing if you become incapable of continuing payments. If you become too sick or injured to work, this rider goes into effect and covers your life insurance premiums. Qualifying scenarios would include things like severe injury, permanent illness or some other catastrophic life change that results in you becoming disabled.

When you consider that one in four adult Americans lives with a disability, the benefit of this rider becomes clear. Instead of using your limited funds to pay your premiums so your life insurance policy remains active, you can use that money to budget toward living expenses and much-needed healthcare.

The waiver of premium rider does cost extra per month, and the price will vary based on your health and, ultimately, the likelihood of disability while the policy is in force.

2. How does the waiver of premium disability benefit work?

The individual terms of using the waiver of premium rider benefit will vary from carrier to carrier, so it’s important to read the fine print.

There are no fees associated with utilizing this benefit (that’s what the added premium cost covers), and you can file a claim more than once. But there is usually a six-month waiting period before you can have your premiums waived.

Typically, the benefits of this rider will end once the policyholder is no longer disabled. If the disability proves to be long-term, the premium payments will be covered up until a certain age, such as 65 or 70.

When you file a disability claim, your insurance company will waive the premiums only after the waiting period has been met and your claim approved. If your claim is approved, they will reimburse the premium payments you made during the waiting period.

If you make more than one claim on a recurring disability, it can be considered a continuation and, depending on how much time has passed, you may not be required to fulfill the 6-month waiting period. On the other hand, if you make a claim on a new disability that is unrelated to a previous claim, then a new waiting period will go into effect.

The procedure for filing a claim depends on the specific life insurance company you choose, but common requirements include a physician’s statement and a notice from the Social Security Administration, both attesting to your disability.

3. Who qualifies for the waiver of premium rider?

The waiver of premium rider is typically available to adults ages 18 to 60 who don’t have pre-existing disabilities. It can only be purchased when you first apply for a policy — not added at a later date. For example, Haven Life offers the waiver of premium rider as an optional add-on for certain states in the Haven Term application process. (Separately, but related, Haven Life also offers disability insurance.)

4. How much does the waiver of premium provision cost?

The cost and availability of the waiver of premium rider will depend upon a risk assessment based on your age and your physical health. This risk assessment is necessary because a waiver of premium rider is meant to cover an unforeseen disability, not a disability that appears highly likely at the time of purchase.

Fortunately, the waiver of premium for disability is fairly affordable for most policyholders from month to month. On a term life insurance policy, the rider might cost between roughly 15% and 25% of your monthly premium.

For example, if you’re a healthy 35-year-old man buying a 20-year, $500,000 policy, coverage would start at about $20.72 per month. Therefore, if the rider is available in your state, adding a waiver of premium rider would approximately cost an additional $3 per month.

It is important to remember that your insurer will consider your age, health history, occupation, and activities when determining the appropriate cost for coverage and riders.

5. Is the waiver of premium rider worth it?

Whether or not the waiver of premium for disability is worth it for you depends upon your financial resources and priorities.

The tricky part of deciding whether or not to buy insurance, or any insurance-related product, is that nobody knows the future. But any life insurance policy worth having is also worth keeping if and when you become disabled — and this is where the waiver of premium rider comes in. In essence, it is disability insurance for your life insurance. And more peace of mind is never a bad thing.

About Tom Anderson

Tom Anderson is an award-winning financial journalist whose work has appeared in CNBC.com, Kiplinger’s Personal Finance, Money, Monocle and Wired. He was a 2008-09 Knight-Bagehot Fellow in Economics and Business Journalism at Columbia University.