Disability waiver of premium is language included in life insurance and disability insurance. We’ve talked in other articles about life insurance and disability insurance. They are both intended, in a broad sense, to replace income by paying money when a stated event happens to a person (not to property). The benefits are paid when the event occurs under circumstances that are not excluded by the policy. Life insurance pays upon death, and disability insurance pays when the insured is unable to work. The operation of disability insurance is a little more complicated than that, but those are the basics.
All insurance, including life and disability, has at least 2 characteristics in common:
• You have to pay a premium (money) to get and to keep the insurance policy in force
• Both can be bought in different amounts. The premium differs, based in part on the amount of insurance purchased Other factors determine the premium, including unique features of the policy and riders that change the basic terms of the insurance policy. A rider is an amendment that typically adds benefits to the basic policy.
A disability waiver of premium rider may be offered in conjunction with the purchase of a life insurance policy. It relieves the insured (or the owner of the insurance policy, if different) from the obligation to make continued premium payments if its terms are met. Typically, the waiver will be triggered if the person responsible for premium payments becomes disabled. The definition of disability is stated in the rider. Unless the definition of disability is met, premiums are still due.
You might consider the disability waiver of premium rider as a disability policy connected to a life insurance policy. The “benefits” paid by the rider are essentially the life insurance premiums.
The waiver of premium rider may be worded something like this:
This rider waives all premiums on the base policy if the insured becomes totally disabled without interruption for at least six months. If the disability starts before the policy anniversary when the insured is age 60 and the disability continues without interruption to age 65, then all future premiums are waived.
The example language is just that — an example. The language of the rider made available to you may be different.
In the example, the first sentence explains what must happen for the waiver of benefit rider to be potentially triggered: the insured has to be disabled without interruption for at least six months. When notified of a claim under the rider, the life insurance company will request all relevant medical records. It will also review employment records to determine the kind(s) of work that the insured has historically done (and the kinds of skills involved in each). The life insurance company may also have the insured examined by its own doctors and other professionals, such as psychologists, occupational therapists, and others.
The second sentence of the rider means that if the disability starts when the insured is under 60 and continues uninterrupted until he/she is 65, all future premiums due on the life insurance policy will be waived. This assumes that the insured had the life insurance policy before the disability started.
The Value Proposition of Disability Waiver
A disability waiver of premium rider is an add-on to a basic life insurance policy. That is, it adds a benefit. As such, the life insurance company charges an additional premium for the added benefit, and sometimes the extra premium can be substantial. Yet, if you are at a point in life when it is important to have life insurance, especially in a large amount, such as during child-rearing years, this might be a worthwhile addition to an underlying life insurance policy.
The decision whether or not to get the rider should not be made in a vacuum. Instead, look at your entire financial picture. If circumstances are such that you would unlikely be able to continue paying the life insurance premiums upon disability, buying the rider might make good sense. However, if you have long-term disability insurance (or substantial other assets) with which to cover living expenses and the life insurance premium, perhaps the cost of the rider may be better applied.
As usual, this is not intended, and I caution you not to interpret this as financial advice. You need to consult with a financial professional who is familiar with the totality of your circumstances.