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Waiver of Premium: What it is and the Benefits of Life Insurance Riders
In the following article covering the waiver of premium rider, also known as the disability waiver of premium rider, we will define what it is, talk about the benefits of including it with your policy and how to make a claim to your insurance company if the need arises. You can also get a life insurance quote and see what life insurance will cost for you.
What is the Waiver of Premium Rider?
With every life insurance policy, there will be an opportunity to add certain life insurance riders to your policy which enhance your policy and provide further benefits.The additional benefits help to enhance the value of your policy beyond mere "death" insurance, such as providing long term care or other living benefits.
One classic example with term life insurance is the ‘Return of Premium’ rider. If you outlive your policy and this rider is attached, every single premium you paid over the course of twenty or even thirty years will be returned to you.
Definition of Waiver of Premium: With the Waiver of Premium rider, the idea is that your premiums will be waived (or paid on your behalf) if you were to come down with a serious illness or disability. As a completely optional rider, it will increase the cost of your premiums now, but the hassle and stress it could save (not to mention save your policy) is something you need to consider.
For most insurance providers, the insured must become totally disabled before the rider becomes active. Further, there is a waiting period in which the insured must be disabled for 4 to 6 months (depending on company) for the rider to take effect. If this were to occur, the rest of the premiums due for the policy will be waived and the policy will remain in force for the duration of the policy.
Some other nuances to be aware of are that if the insured is disabled before age 60, the waiver of premium lasts for the entire life of the policy. Some policies only allow the waiver of premium to age 60. Others allow the waiver until age 65. However, if disability occurs between ages 60 - 65, the waiver of premium only lasts 2-3 years depending on the carrier. And after age 65, the rider drops off completely and the insured is no longer eligible for waiver of premium.
Disability waiver of premium riders are available for level term life insurance policies because they always have an end date. For the insurance companies, they can balance risk and still provide all policyholders with this option.
But realize that disability waiver of monthly deduction riders are also available with permanent life insurance. If you become disabled your policy will continue to stay in force throughout your disability, even if the disability lasts your entire life.
That is why this rider is essential when considering using life insurance in a buy sell agreement or some other business succession plan.
Further, adding a waiver of premium to your life insurance in an estate plan is also critical to avoid a lapse of your policy if you are incapacitated and no one can act as your agent to make your premium payments.
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Benefits of the Waiver of Premium Rider
Today, we’re going to discuss everything there is to discuss regarding the Waiver of Premium rider. In addition to the benefits and why you should consider installing this rider onto your policy, we’re going to talk about things you need to know before purchasing.
First, let’s deal with the benefits; why should you even think about increasing your premiums ‘just in case’ you were to become disabled in the future? Let’s take a look…
If you were to suffer from a disability, there are a number of effects this will have on your finances and none of them are positive.
First and foremost, you’re likely to need medical attention whether this comes from the doctor, hospital, or even a care home. Instantly, this increases your expenses. However, you also won’t be able to work which means your income, between you and your partner, will be cut in half. In some cases, the partner is forced to leave their job because they can’t afford someone else to care for you.
If we assess these three impacts, you lose your income, your partner loses their income, and your medical expenses are through the roof, your entire family will be in trouble. In the past, this has destroyed many a family both in the short-term and in the long-term. Furthermore, it destroys families emotionally because nothing will ever be the same again. While life insurance protects against death and will pay a benefit after passing away, it cannot do anything to help before that if you don’t have the appropriate riders in place.
Life Insurance Future
With the financial impact we’ve discussed, what if you can’t afford to pay the premiums on your life insurance policy? Now, not only are you in debt and making sacrifices to free some money, you won’t have a life insurance policy to provide your loved ones with a death benefit and final expenses either.
Starting with a disability, it soon snowballs and your whole family will be affected. Often, people laugh off this rider because they think it only impacts on themselves; ‘no I don’t need that, I’m in the best shape of my life’ or ‘don’t worry about that, nothing will happen to me’. Unfortunately, this is a fairly selfish attitude because it has a huge effect on the whole family for many years to come.
Within the life insurance world, providers tend to use what we call ‘total permanent disability’ in order to determine whether or not you qualify for a claim using the rider.
Ultimately, this means any illness or injury that will prevent a person from doing the job for which they are trained and educated both now and long into the future. Just to keep things confusing, insurance companies will typically have varying definitions. However, they all cover the loss of sight, hands, limbs, paralysis, and major illnesses that will affect one’s ability to work.
When we use the word ‘disability’, there’s often confusion as to what it means and most think it needs to be a huge accident where we’re bed-ridden for the rest of our lives. In reality, this isn't the case because it can be something more common such as losing a hand.
Sure, you can control what happens in your own life but you don’t always have control over everything around you and you can’t be sure that an accident won’t happen.
By including the Waiver of Premium rider on your life insurance policy, it gives you (as well as your family) peace of mind that financial protection is assured should the worst happen. No matter how much you think you can avoid a disability, a quick discussion with those involved in car accidents and the like will soon change your mind. As unfortunate as it is, accidents and disabilities do occur.
Value for Money
In recent years, there’s been a common misconception about the price of the Waiver of Premium rider. Considering the value it adds to your policy, you get value for money many times over. In our opinion, life insurance should be more than just a death benefit after passing away. By adding this particular rider, as well as others, it becomes a more valuable contract in your life and you’re protected against the tough times that life likes to throw our way sometimes.
Waiver of Premium + Guaranteed Insurability Rider
Adding a waiver of premium rider and a guaranteed insurability rider is a great way to enhance you life insurance policy.
This combination is ideal when getting life insurance for children. So all you grandparents and parents, be aware that adding these two riders to the policy for your kids or grand kids adds another level of protection and the ability to get additional life insurance down the road.
How to Make a Claim
With all life insurance, we always hope it isn't needed until you plan rather than having to claim early. With the Waiver of Premium rider, this is something we always hope we won’t need but something that is enough of a risk to warrant adding it to our policy. However, what if you or your family does need to claim?
To start, you should get in contact with your life insurance provider as soon as possible. Typically, they will request a few items although the exact requirements can change between one company and the next. For example, the most obvious request from the provider will be a signed document from the doctor noting the extent of the insured’s disability.
After this, the Social Security Administration can provide a letter proving the insured’s disability and some providers will accept this if you don’t yet have a signed document from the doctor.
Finally, there are two more documents and, depending on your provider, you might need just one or both. With the first, this is a rider claim form and it states all the important information; the insured needs to sign this to signal their intent of exercising the rider. With some companies, a signed letter of instruction may also be required.
Over the coming days and weeks, you’ll need to fax or email these forms over but we always recommend phoning the insurance company first. This way, they can talk you through the process step-by-step and you'll know exactly what to do.
Waiver of Premium Considerations
Finally, we have some considerations you need to make before going ahead and adding it to your policy. In addition to this, there will also be some tips mixed in to make the process of buying easier.
Buying the Waiver of Premium Rider - Although we know the most popular question here will be ‘how much does it cost’, it’s actually impossible for us to answer this because the rates vary from one provider to the next.As a general rule of thumb, waiver of premium riders run about 5-10% more than the typical premium. We would be happy to run some quotes for you to compare.
Comparing the Market - If you haven't yet got a policy in place, this is good news because you can shop the market and find the provider who offers everything you need, including the Waiver of Premium rider, for the best price. If you were to have a policy already, you would be restricted as your company may not even allow you to get it since your policy is already active. Pay attention to your options and take your time when selecting the right company and policy for you.
Research - As we’ve already said, every single life insurance company is different in the way they do things and this includes the small print. Before agreeing to a deal, be sure to read as much information as the provider offers and more. During your research, you should know what triggers the rider, how much you have to pay, and how you or your family make a claim should the worst happen.
Adding at Issue - If you’re shopping the market for a brand new policy and rider, you’re in the best position because you’ll pay less for having the rider attached. On the flip side, it can be significantly more expensive for those looking to add the rider to their existing policy due to the need for more underwriting if the carrier would even be willing to accommodate such a request. Therefore, we recommend sitting down and working out all the costs and benefits of adding the rider to the policy. By working with an agent, you might be able to work out a way of starting a new policy or transferring to a new policy so you don’t have to pay as much for the rider.
No Pre-Existing Disability - As you might expect, not a lot will happen if you buy the rider and then try to claim for a pre-existing disability. When an insurance provider receives a claim, they will ask for a statement from the doctor and it won’t be long before the company finds out when the disability was first diagnosed and you could actually get into trouble for providing false information for financial gain.
Age Limit - Finally, most companies will add an age limit to the rider and this will normally be at 65 years. Why? Because most people retire at this age so they won’t be losing an income after a disability at any point after 65 years of age. As we’ve seen, the Waiver of Premium rider is all about providing the financial help when necessary.
You have a higher chance of becoming disabled before age 65 than dying. Both will leave a huge impact on you and your loved ones. Consider the waiver of premium rider as a valuable add on to any life insurance policy.
So, what are you waiting for? Give us a call today or visit our Life Insurance Quotes page and see what we can do for you!