What Is a Waiver of Premium Rider?

What Is a Waiver of Premium Rider?

Insurance riders, such as the waiver of premium rider, are optional add-ons that can be attached to a life insurance policy. Some of these riders protect against terminal illness, the death of a child, or even multiply your death benefit amount if death occurs due to serious injury/dismemberment. A waiver of premium rider is specifically designed to protect against the possibility of losing a life insurance policy if you cannot pay the premiums due to long-term illness or disability faced by the insured individual.

Should you face injury or illness that keeps you from working and you have a waiver of premium rider on your policy, the waiver will help ensure your continued life insurance coverage by waiving either the entire premium or a portion of the premium as defined in the contract, to keep the policy alive for you. 

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While your inability to work may compromise your earnings, the waiver of premium rider means that the insurance company will waive payment of your associated premium for the length of time that you remain disabled. This optional rider can be a major boon to people who experience extended disability and want to keep their life insurance protection.

One thing to keep in mind is that the waiver of premium rider is always tied to the person who is insured, even if it is not the insured who is making the premium payments. For example, if a parent purchases a policy for their minor child with a waiver of premium rider, the rider would only keep the policy active if the child were to become disabled, not the parent. 

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How Does a Waiver of Premium Rider Work?

To activate benefits on a waiver of premium rider, you must first file a disability claim with your insurance company following a serious injury. In most cases, a waiting period will exist in which you must still pay your insurance premiums prior to the waiver of the premium rider taking effect. Typically, this waiting period is six months, but you may want to contact your insurance specialist to check.

The good news is, that as long as your disability claim qualifies to activate the waiver of premium rider after the waiting period, any premiums that you paid during the waiting period will be refunded to you.

Limitations on how much or how long the insurance company will waive your premiums can vary between insurance companies. In some cases, your premiums will continue to be waived for the entire duration of your disability, but limitations are often defined for disabilities that occur after age 60, and sometimes premiums will only be waived through age 65.

There can be limitations based on the definition of total disability too. Total disability is often defined as being unable to perform your “own occupation” for somewhere between 2-5 years and then unable to perform “any occupation” after that time.

In summary, a waiver of premium rider works like this:

• A waiver of premium rider can be added to a life insurance policy to help protect and preserve your life insurance benefits if you become disabled.
• Once a waiver of premium rider activates due to disability, your insurance company will waive premiums for you.
• There is a waiting (elimination) period between the time you become disabled and the time the waiver of premium rider goes into effect  (typically six months); the insurance company will refund the cost of the premiums that you paid during the waiting period (and waive your premiums going forward) assuming you are still disabled after the waiting period.
• Premium waiver may be limited after 2-5 years, or after age 65 depending on the definitions of disability and the wording in the waiver of premium rider from your insurance company.

How Do You Qualify for a Waiver of Premium Rider Benefit?

A Waiver of Premium rider is typically added to a new policy during the initial application process. Certain factors including age, overall health, pre-existing illnesses or medical conditions, and even your career and some hobbies may be considered during the underwriting process to determine whether the insurance company is willing to offer the waiver of premium rider. 

Once your policy is in force with a waiver of premium rider and you become disabled, there is some further qualification for rider benefits to be activated: 

• Your injury must qualify as a disability. The definition of disability can be found in your policy contract or illustration. You can also reach out to your insurance provider if you’d like assistance locating it.
• Medical examinations from an appropriately certified medical professional will most likely be required to show proof of disability.
• You will need to continue paying premiums through the waiting period, although these premiums will be refunded once benefits under the rider are successfully activated.

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What Are the Requirements for Submitting a Waiver of Premium Claim?

To submit a waiver of premium claim, certain documents are generally needed. These often consist of a medical statement from a doctor and a confirmation from the Social Security Administration (SSA) regarding the individual’s physical disability or impairment. Following this, the applicant can proceed to file their claim using the appropriate form.

The advantage of a waiver of premiums is that it enables individuals to allocate their limited personal resources towards palliative care, managing personal finances, and covering daily living costs. However, the primary benefit lies in maintaining the coverage provided by the insurance policy.

How Much Does a Waiver of Premium Rider Cost?

A waiver of premium rider adds to the premium on your life insurance policy. The extra cost is broken down and divided among your regular premium payments. The additional premium is relatively low, sometimes accounting for as little as an additional $10 a month. Obviously, this can increase based on the amount of premium which is covered under the rider. The premium for this rider is fixed so it will never go up, and won’t change unless you choose to drop the waiver of premium rider from your policy. 

What Are the Restrictions?

Waiver of premium riders can come with various limitations, such as exclusions for pre-existing conditions or physical disabilities. There might also be restrictions based on health status and age. Additionally, it’s possible that waiver of premium riders are not offered in all states.

Is the Waiver of Premium Rider Worth It?

Although no one wants to think about losing their ability to work, it is reasonable to consider the possibility of disability or serious injury at some point in the future. According to the Center for Disease Control (CDC), approximately 27% of adults in the US suffer from a disability, and the United States Social Security Administration (SSA) reports that 25% of today’s 20-year-olds will become disabled before they reach retirement age.

The risk of serious injury often increases with age. But it’s also worth noting that the likelihood of getting injured and facing disability is significantly higher than the likelihood of death for persons under the age of 65. These considerations often make a waiver of premium rider a worthy inclusion on a life insurance policy to mitigate possible financial loss.

If your career carries with it some inherent level of danger, then a waiver of premium rider becomes potentially more valuable. Even if your job is relatively low-risk, you may nevertheless face the possibility of injury or disability through accident or unforeseen circumstances. 

When asking yourself if such a purchase is “worth it,” remember that the goal is to protect yourself from the possibility of financial hardship. The small cost of adding a waiver of premium rider may well justify the additional coverage you gain moving forward.

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Let McFie Insurance Help You

Consider if a waiver of premium rider is right for you, and learn more about the value and protection of Whole Life Insurance in protecting the financial stability of you and your loved ones. When you’re ready, reach out to one of our insurance specialists to schedule a strategy session and let us help you find the options that best fit your needs.

by John T. McFie
I am a licensed life insurance agent, and co-host of the Wealth Talks podcast.
At age 14 I started developing spreadsheet models and software systems to help my Dad share financial concepts with clients. 
Skipped college at 17 recognizing the overinflated value and prices of most college degrees and built more financial software instead (see MoneyTools.net). Still a strong advocate of higher education without going to college.  I enjoy making financial strategies clear and working through the numbers to prove results you can count upon.