Paying the premiums keeps your life insurance coverage active.
If you died with coverage in place, your family could claim your policy’s death benefit. The payout could help your family build a new life.
But what would happen if you became disabled and couldn’t work, making it impossible to afford your premiums?
You’d probably lose the life insurance coverage — unless you’d opted for a disability waiver of premium rider when you bought the coverage.
How a Disability Waiver of Premium Rider Works
A disability waiver of premium rider gives you a way to keep the policy in place even when you can’t pay the premiums because you’re disabled.
The rider allows your insurer to pay the premiums for you, keeping your coverage active in case your family needs it.
When you recover and can work again, you can resume paying premiums without interrupting your coverage.
As with any life insurance rider, you’ll pay a higher premium to add this flexibility to a policy. How much more you’ll pay depends on several factors, which we’ll explore below.
The Value of Waiving the Premium
The value of a disability waiver of premium rider seems clear enough on the surface: You get to keep your coverage even if a disability prevents you from paying the premiums.
But is this flexibility worth the extra money? Couldn’t you simply let your insurance lapse and then buy another life insurance policy when you’re able to pay the premiums again?
Yes, you could. But life insurance costs more the older you get. I
f you bought a policy at age 35 and locked in a rate for a 35-year-old, getting a new policy at age 50, for example, would require higher premiums.
A rider can keep your policy active while you’re disabled and can’t afford the premiums.
Not only can you keep the same coverage at the same price, but you will also have the option to keep the coverage in force while you’re disabled and unable to pay the premiums.
Limits of a Waiver of Premium Rider
Naturally, your insurance company won’t take over your premium payments without good reason. When you have a disability waiver of premium rider, you’ll still have to meet some requirements before activating the rider:
- Proving Your Disability: Your insurer will define what it considers a disability. To prove you’re disabled, some insurers may require documentation from the Social Security Administration or your physician. Be sure you know the rules before buying in.
- Waiting Periods: Before you can activate the rider, your insurance company will require you to complete a waiting period of three to six months. (Some companies call this an elimination period.) The waiting period starts when you become disabled. While you wait, you’ll have to continue paying your premiums. Typically, you have to complete a waiting period only once. If you recovered but became disabled a second time, you could then reactivate the rider without waiting.
- Different Kinds of Disability: Most companies make an important distinction when they define your disability: Own occupation vs. any occupation. With an own occupation policy, your inability to work in your chosen field qualifies as a disability. With any occupation coverage, you’d have to be unable to work any job to waive your premiums. An own occupation rider usually costs more.
- Age Requirements: Typically, insurance companies stop offering waiver of premium policies when you reach age 65. These riders are designed to protect your coverage when you’re unable to work. Since 65 is the traditional retirement age, companies assume you’re no longer using your earnings to pay premiums.
These limitations vary among different insurance companies. You can find less strict requirements for disability waiver of premium riders, but these riders will ordinarily cost more.
Buying a Waiver of Premium Rider
Almost every life insurance company offers a disability waiver of premium rider. It’s one of the most popular of all life insurance policy riders, and you won’t have any trouble finding a policy with this feature.
You can get this type of rider on a term or a whole life policy:
- With Term Life: Term is the simplest kind of coverage. Because term life has an expiration date, its premiums typically cost less and offer more coverage. The disability waiver of premium rider will normally be added as a percentage of your premium — usually 10 to 15 percent for a term policy.
- With Whole Life: Whole or permanent life insurance can last the rest of your life. Along with your permanent coverage, your premiums fund an additional cash value which you can use later in life. These extras make your premiums significantly more expensive compared to term life. The rider may add 3 to 5 percent extra to your whole life premiums.
Paying these extra percentage increases will add more to your regular premiums, but if you need the rider, you’ll be glad to have made the purchase.
Unfortunately, you can’t add the rider after you buy the coverage. It must be purchased at the time you buy the coverage. Sometimes you can pay the extra money for the rider up front as a lump sum.
Ways to Save on Life Insurance
If you’d like to buy a disability waiver of premium rider but the extra cost has you concerned, you may be able to compensate for the added expense by shopping more mindfully for coverage:
- Just-Right Coverage: Buying just the right amount of life insurance instead of buying too much coverage can help you save money. If you needed only $750,000 in coverage, you should shop for that amount instead of rounding up to $1 million which will cost more.
- Right Kind of Coverage: Unless you need a more versatile permanent life insurance policy, term life coverage can save you a significant amount of money, often while getting more coverage for your loved ones.
- The Right Term: If you do get term life, getting a term that fits your needs can save you money. If you won’t need a large coverage amount in 20 years because your kids will be grown or your house will be paid off, stick with a 20-year policy instead of buying 30 years of coverage.
- Buy Coverage While Young: Younger people have access to the best life insurance rates, especially for term coverage. The rate you lock in now will last throughout the policy. The longer you wait to buy coverage, the more you’ll pay — assuming you maintain your current health status.
- Quit Smoking: Tobacco use skyrockets life insurance rates because people who smoke, chew, or dip are statistically more likely to develop life-threatening illnesses.
- Get Help From an Agent: While you can find a lot of great life insurance by shopping around online — especially if you’re young and healthy — an independent life insurance agency like ours can help you find the best coverage for the best price with or without a disability waiver of premium rider.
Who Should Get a Waiver of Premium?
Here’s the tricky thing about a disability waiver of premium rider: You can never know for sure whether you’ll need it.
If you know you’ll need the rider because you already have a pre-existing condition that could disable you, you will not qualify for the rider.
Instead, you have to buy the rider in anticipation of the need.
Of all the riders available in the insurance marketplace, you could make a case for getting this one above most others because this rider can keep you insured even when you can’t afford the coverage.
Other Riders and Products to Help with Disability
If you have another way to deal with a disability that prevents you from earning an income, you may not need a disability waiver of premium rider added to your coverage.
Concerns about disability have inspired these other products you may already have or may be interested in getting:
- Disability Income Rider: If you became disabled and couldn’t work, a disability income rider added to your life insurance policy could provide a monthly source of income, as defined by the rider. Ordinarily, you wouldn’t need both a disability waiver of premium and a disability income rider.
- Accelerated Death Benefit: A policyholder who developed a terminal or other kind of qualifying illness could activate an accelerated death benefit and receive a portion of the policy’s coverage prior to death. This added flexibility could help you pay medical bills that are threatening your family’s financial stability.
- Disability or income insurance: Unlike riders, disability insurance is separate from life insurance. This kind of coverage can replace a significant portion of your income if you become disabled and can’t work. You could buy a short-term or long-term policy, but a long-term policy usually offers the best deal. Your employer may offer a short-term disability insurance policy in your benefits package.
- Workers’ Compensation: If you were injured at work, your company’s Workers’ Compensation insurance should be available to help while you’re disabled.
Bottom Line: Waiver of Premium Can Expand Protection
You could think of a disability waiver of premium rider as an insurance policy for your life insurance. The rider can protect your insurance against the threat of a disability preventing you from paying the premiums.
To some policyholders, waiver of premium riders seem like an extra layer of caution, but that’s how insurance works — there’s always an element of the hypothetical: You can’t know for sure whether you’ll ever need the rider.
Without the rider, or without another plan for dealing with an unexpected disability, you may discover one of the inherent weaknesses of life insurance: It helps your family only if you’ve died.
If you’d like to give your coverage the agility it needs to continue protecting your family when you’re disabled, consider the disability waiver of premium rider.