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What happens if you become disabled and can no longer pay your life insurance premiums? A waiver of premium rider keeps your policy intact.
Riders offer additional coverage to enhance your life insurance policy
If you become disabled and can no longer work, a waiver of premium rider covers the cost of your life insurance premiums by withdrawing from the death benefit
Because a waiver of rider does not replace the income that you might lose if you are unable to work, individuals should supplement their rider with a separate disability insurance policy
When you’re buying life insurance, there are additional components called riders that can be added to your policy to create a robust safety net for you and your loved ones. The waiver of premium rider is one of these components, and it protects your life insurance policy from lapsing if you become disabled and can no longer pay the policy premiums.
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Riders are customizations to your life insurance policy that create more robust coverage and enhance your policy. Adding on a rider increases the cost of your premiums, but provides an additional benefit beyond basic life insurance coverage.
Some common life insurance riders include:
The waiver of premium rider is a type of accelerated benefit rider, which means that it offers life insurance benefits while you’re still alive. Also called a disability income rider, adding a waiver of premium rider allows you to forego premium payments if you become disabled and cannot work for six months or more while still keeping your life insurance policy intact.
Your premium payments will be withdrawn from the death benefit so that you no longer have to worry about paying them or risk surrendering your life insurance policy. Once the disability ends and you can work again, you resume making your premium payments.
While most life insurance companies offer waiver of premium riders for disabilities, some also offer the rider for unemployment. Similar to a waiver of premium rider for a disability, a waiver of premium for unemployment enables you to keep your life insurance policy intact without making premium payments if you are out of work.
The waiting period between an injury and when you receive benefits from the rider is called the elimination period.
How long you’ll have to wait between incurring a disability and receiving the rider varies for each carrier. Some carriers have an elimination period as low as four weeks, while others have elimination periods as high as six months.
|Life insurance company||Waiver of premium rider elimination period|
|Banner Life (William Penn in New York)||6 months|
|Mutual of Omaha||4 weeks for unemployment, 6 months for disability|
|Pacific Life||6 months|
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The waiver of premium rider is an additional supplement to your life insurance policy — and comes at an additional cost. It’s a flat fee added to your premium payments and will remain the same throughout your policy. Just like premium payments, the amount you pay for an additional rider is determined by your insurer, age, and health classification. When you go through the underwriting process, the cost of the waiver of premium rider will be determined alongside your premium payments.
Qualifying for a waiver of premium rider is usually difficult — to do so, your disability must fall within specific parameters. To utilize the rider on your life insurance policy, you must fall within the waiver of premium rider’s definition of disability and be under the maximum age limit.
Some insurers have age limitations set in place for the waiver of premium rider, while others are more flexible. The graph below shows the age limit (if any) set in place for each life insurance company.
|Life insurance company||Waiver of premium rider age maximum|
|AIG||Policy anniversary nearest to 65th birthday|
|Banner Life (William Penn in New York)||65 years old|
|Lincoln||65 years old|
|Mutual of Omaha||N/A|
|Pacific Life||65 years old|
|Protective||60 years old|
To understand when your waiver of premium rider would be applied to your life insurance policy, it’s vital to understand how life insurance companies define disabilities. To claim the full benefit of the waiver of premium rider, you must be totally disabled, unable to work any position, and currently seeking treatment from a physician.
The waiver of premium rider defines disability as any-occupation disability, which means that it can only be utilized if your disability prohibits you from performing any type of work and you are unable to bring in an income. The alternative, an own-occupation disability benefit, means that you are eligible for benefits if your disability does not prevent you from working completely, but only prohibits you from working in your current role.
One in four people become disabled throughout their careers, making additional disability coverage an important extra precaution. The older you are, the higher the likelihood that you could develop a long-term disability that might affect your income.
The graph below shows the plausibility of a disability at each age.
|Current age||Likelihood of a long-term disability before retirement||Averation duration of a long-term disability|
|25-30||2.5 in 10||26 months|
|31-40||3.3 in 10||32 months|
|41-50||3.0 in 10||42 months|
|51-60||2.3 in 10||50 months|
|60+||1.0 in 10||54 months|
An unexpected disability that can prohibit you from working can occur at any time, and if you are unable to pay the premium payments, you will have to surrender your life insurance policy. Adding on a waiver of premium rider protects your policy if you suffer from a disability, but there is a far more effective way to protect your finances if you become disabled.
While purchasing a waiver of premium rider can offer the additional benefit that your life insurance policy won’t lapse, purchasing the rider alone won’t offer enough overall security if you become disabled. This is due to two key reasons:
A disability insurance policy is the best way to set up additional security for a disability that prevents you from working. It replaces some of the lost income so that you don’t have to dip into your savings (or the cash value of your life insurance).
Adding on disability riders to a life insurance policy protects your financial security and life insurance policy while you are still alive. A waiver of premium rider is just one of the supplemental coverage options to consider for your life insurance policy in case you become disabled at any point throughout your life.
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