A waiver of premium rider pays all life insurance premiums due if the insured person becomes disabled. A waiver of premium rider is an optional benefit on many term life insurance policies, and may also be available on permanent forms of insurance coverage. This is one of the most popular life insurance riders.
The waiver of premium rider will provide a benefit only if the insured person becomes totally disabled. If a total disability occurs, the remaining premium charges will no longer be required to be paid, but the policy will remain in force for the length of term that the policy was written for. Besides term policies, there may also be waiver of premium riders added on whole life insurance, universal life insurance, and variable universal life insurance.
Rider Must Be Added At Issue
While some select few policies may include a waiver of premium rider with the policy (this is generally more commonly included without charge on universal and variable universal life policies) the rider generally is added at cost, and it must be added at issue. Adding the rider at the issue of the policy is a risk because it increases the cost of the insurance, but this must be balanced against how the policy owner would cope with paying the premiums in the event of a disability. The rider may actually benefit less well-off clients the most, because they would least be able to cope with paying for life insurance if they became completely disabled. Their families are also most likely to need the death benefit should a death occur.
Disability Must Occur After Policy Is Issued
A disabled person can not be issued a life insurance policy with a waiver of premium rider. This would mean that the life insurance company is issuing a free policy to anyone who is disabled. To prevent this from happening, the disability must occur after the policy has been in force. Sometimes there are restrictions regarding how long the policy must be in force before a waiver of premium claim can be made. Often this is at least one year after the policy has been in force.
The requirements of the rider usually state that the insured person be “totally and completely disabled”. The most common definition of a total disability is one where the disabled person is no longer to earn any income from a position which they are reasonably suited for, and will not be able to at any foreseeable time in the future.
Disability Must be Before Age 65
Most companies have a requirement that the insured person must be under age 65 when the disability occurs for a claim to be made for the waiver of premium rider. The reason for this is that most people retire around age 65. If someone is disabled after this age, they most likely would not have earned additional income anyway, and the disability is not a major impediment to their ability to pay their bills. People are also much more likely to become disabled after age 65, so the life insurance companies protect themselves from a rash of claims by putting this age limit in place.
Some companies may also require the disability to occur before at 60 for the waiver of premium to pay life insurance premiums after age 65. If the disability occurs between age 60 and age 65, it is fairly common practice for the waiver to cease at the insured’s 65th birthday. Always understand the restrictions of the rider before making a purchase from any life insurance company.
Many companies also require that a person be disabled for a certain period of time before they can make a claim on the rider. This is usually 6 months but may vary between companies.
Why The Rider Is Valuable?
This rider is particularly popular and valuable to people because a total disability will inevitably decrease a person’s income. That means that it is more difficult to pay bills such as life insurance. It also makes it much more difficult to save money. This impacts the retirement plans of the disabled person, and also their spouse if they have one. A disability usually means medical bills, which often require a family to tap into their savings to cover. With less savings, and less ability to add money to savings, a total disability will have a significant and negative impact on a person’s net worth, the amount that they are able to save for retirement, and the amount that they will be able to pass along to their beneficiaries.
The waiver of premium rider not only eases the burden of paying life insurance bills, but it prevents the life insurance policy from lapsing. When people have a difficult time paying bills, they often will terminate their life insurance quickly as a way to make spending cuts. If someone is disabled and they terminate their life insurance, the effect can be very severe to their families.
Many disabled people have lower life expectancy than average because of their medical troubles. Their medical bills may have already put their family in a tough financial situation. If they pass away without life insurance, the family can be left broke, heartbroken, and without the necessary financial means to cover their bills and the retirement of a spouse. A disabled person perhaps needs life insurance more than a healthy person for these reasons, but without the waiver of premium rider there is a high likelihood that they will let a life insurance policy lapse.
The real benefit of the waiver of premium rider is that it is not expensive, provides a very valuable service, and preserves a life insurance contract when it is most needed.
What Is Needed To File A Claim?
If you have a life insurance policy and you have become disabled, and you think that you may have a waiver of premium rider on the policy, please contact your life insurance company immediately. Usually a company will need a few items for a claim, but the requirements can vary between companies. The items most commonly needed are:
- A signed statement from a doctor stating that the insured person has become totally disabled, and the note must specify when the disability occurred.
- A letter from the Social Security Administration stating that the insured person is totally disabled. This may often be used in lieu of a doctor’s statement.
- A rider claim form provided by the insurance company which which the owner and insured person must sign, indicating that they would like to exercise the waiver.
- A signed letter of instruction from the policy owner, indicating their intent to exercise the rider. This may sometimes be used in lieu of the claim form.
These requirements should be mailed or faxed to your life insurance company, depending upon their specific requirements. If you think that you may have an eligible claim please call your life insurance company before submitting any documentation, and find out the exact requirements needed to exercise the rider.
How Much Does A Waiver Of Premium Rider Cost?
The cost will vary between companies, and may vary with the insured’s age at policy issue. It may be assessed as a one time charge when the policy is issued, or it may be assessed monthly or annually as premiums are due depending upon the company and product type. Usually the cost will not average out to be more than a few dollars per hundred thousand dollars of life insurance face amount coverage per year.
How to Purchase A Policy With A Waiver of Premium Rider
If you would like to buy a life insurance policy with a waiver of premium rider, please indicate to your agent before the policy is issued that you would like to include this rider. It can not be added after the policy is issued in most cases, and the rider does require underwriter approval. If you would like to shop for policies with the rider and compare quotes, please enter your zip code in our quote comparison tool at the top.