Understanding Waiver of Premium: What This Life Insurance Rider Means

Lynn Leritz is a vice president of Insurance Solutions.

When you’re considering life insurance, it’s common to think about how much coverage you need or what type of policy is right for you. You probably aren’t thinking about the possibility of a disability that prevents you from working. But that kind of situation may be more related to life insurance than you might think. And it’s exactly why you can add a benefit to a life insurance policy to help you in the event of a disability.

The waiver of premium rider is an optional benefit that you can add to many life insurance policies when you get them. If you become disabled, it will pay your life insurance premiums during your disability.

Below, we explain what a waiver of premium rider is and how it typically works. We also provide some scenarios where adding such a rider to your life insurance policy can be a good idea and walk through the steps of getting it.

How does a waiver of premium rider work?

In the world of life insurance, a rider is an optional add-on that can either add benefits or adjust your coverage. In other words, riders are a way for you to customize your policy so that it is tailored to your specific needs. They are also sometimes called endorsements.

A waiver of premium rider is exactly what it sounds like: a rider that waives your policy premiums in the event that you have a qualifying disability due to an illness or injury. This type of rider can often be added to both permanent and term life policies, typically when you get the policy. You may also be able to add it when you convert a term policy to a permanent life policy.

After all, it’s not uncommon for people who can’t work due to a disability to struggle with their bills. And it may cause you to think about your life insurance plan. The waiver of premium rider takes this worry off your plate.

Components of a waiver of premium rider

Just like your base life insurance policy, a waiver of premium rider is made up different components that you should know about, including:

• Rider premium: When you add a rider to your policy, it isn’t a one-time expense. To maintain the benefits offered by the rider, you’ll need to pay an additional monthly premium or fee specifically for the rider. The fee for this type of rider is typically low, but it’s an additional cost.

• Definitions: Each life insurance company can structure the contract terms of the rider differently. When you’re considering a waiver of premium rider, it’s important to understand how the rider defines a disability as well as any exclusions that may not be covered by the rider. Most waiver of premium riders will exclude pre-existing disabilities, for example, and many will exclude injuries that result from illegal or risky activities.

• Waiting period: Most waiver of premium riders will come with a waiting period, when the rider is too new to be eligible for a claim. This is similar to the waiting period included in many disability insurance policies. The typical waiting period is between a few months and a year.

• Benefit period: While a waiver of premium rider will typically result in waived premiums until you are no longer disabled and able to return to work, this can vary. It’s important to understand how long your rider will actually waive your premiums and whether or not there’s a reevaluation process for disabilities that extend beyond this benefit period.

• Coverage for additional riders: If you have other riders on your life insurance policy, those riders come with their own premiums. A waiver of premium rider may or may not cover the cost of those additional premiums while you’re disabled—it depends on the wording of your rider.

When should you consider a waiver of premium rider?

The waiver of premium rider makes sense for people in most situations. If any of these apply to you, it’s likely worth considering:

• You’re younger than the cutoff age: Most providers will grant a waiver of premium rider only to policyholders under a certain age known as the cutoff age—it’s often set at 60 or 65.

• You have a dependent spouse or children: A waiver of premium rider may be a good idea if you have dependents whose financial security could be at risk if your life insurance policy were to lapse.

• You work in a physically demanding profession: If you work in a job that carries potentially significant risk of injury or disability—such as construction, firefighting, law enforcement, mining, logging, landscaping, etc.—a waiver of premium rider can be a good idea for you and your family.

• You love adventure: If you have a hobby or interest that carries an inherent risk of injury—like mountain climbing, skiing, scuba diving or aviation—you might consider a waiver of premium rider for peace of mind.

How to get a waiver of premium rider

The easiest time to add a waiver of premium rider to your life insurance policy is when you apply for the policy. Many providers automatically ask new policyholders if they would like to add this rider to their new policy, but if yours doesn’t, all you need to do is ask.

It may also be possible to add a waiver of premium rider if you pursue a term conversion, where you convert a term life policy into a permanent life policy.

Not sure if a waiver of premium rider makes sense for your personal financial situation? Consider working with a financial advisor, who can review the types and amounts of coverage you have and make recommendations for riders or additional coverage that make sense for you.