What is a waiver of premium rider?

What happens if you become disabled and can no longer pay your life insurance premiums? A waiver of premium rider keeps your policy intact.

Nupur Gambhir

Nupur Gambhir

Published December 10, 2019

KEY TAKEAWAYS

  • Riders offer additional coverage to enhance your life insurance policy

  • If you become disabled, a waiver of premium rider uses the death beneift to cover the cost of your life insurance policy

  • Individuals should still 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.

IN THIS ARTICLE

What is a life insurance rider?

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:

  • Accelerated death benefit rider — Provides early access to benefit in cases of a terminal illness
  • Accidental death & dismemberment — Offers an additional death benefit to your beneficiaries if you die in an accident and pays out while you’re still alive if you lose a limb
  • Critical illness benefit rider — Provides early access to benefit for the treatment of certain illnesses
  • Child rider — Provides a benefit to provide for necessary expenses in the event of a child’s death
  • Term conversion — Allows for the conversion of a term policy into a whole policy at the end of its term

How the waiver of premium rider works

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Your premium payments will be withdrawn from the death benefit so that you no longer have to worry about paying them or risk surrendering your life insurance policy.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.

What is the waiting period for a waiver of premium rider?

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 companyWaiver of premium rider elimination period
AIG6 months
Banner Life (William Penn in New York)6 months
Lincoln4 months
Mutual of Omaha4 weeks for unemployment, 6 months for disability
Pacific Life6 months
PrincipalN/A
ProtectiveN/A
PrudentialN/A
SBLIN/A
Transamerica6 months
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How much does a waiver of premium rider cost?

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

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.

Age limits on waiver of premium riders

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 companyWaiver of premium rider age maximum
AIGPolicy anniversary nearest to 65th birthday
Banner Life (William Penn in New York)65 years old
Lincoln65 years old
Mutual of OmahaN/A
Pacific Life65 years old
PrincipalN/A
Protective60 years old
PrudentialN/A
SBLIN/A
TransamericaN/A

Definition of disability

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.

Is a waiver of premium rider worth it?

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 ageLikelihood of a long-term disability before retirementAveration duration of a long-term disability
25-302.5 in 1026 months
31-403.3 in 1032 months
41-503.0 in 1042 months
51-602.3 in 1050 months
60+1.0 in 1054 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.

Disability insurance

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:

  • It is hard to qualify for — Because eligibility for the waiver of premium rider requires total disability, meaning you cannot work any job, it can be difficult to qualify for. If you become disabled and cannot work in your current role, but could still work another job, you are not eligible to use the rider.
  • There is no income replacement — When a disability prevents someone from working, they lose vital income. While the waiver of premium rider removes the stressor of an additional bill or losing their life insurance policy, it does not replace the income needed for food, rent, and bills.

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).

What other disability riders should you consider adding on to your life insurance policy?

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.

  • Disability income rider — Offered only by select carriers, a disability income rider provides you with a monthly stipend to replace your income if you cannot work due to a disability.
  • Critical illness rider — If you are diagnosed with a critical illness, a critical illness rider can pay out a lump sum that is subtracted from the death benefit to cover the cost of treatment.
  • Accelerated death benefit rider — An ADB rider pays out some of your death benefit while you are alive if you are diagnosed with a terminal illness. Sometimes referred to as a living benefit, the money can be used towards anything.

About the author

Insurance Expert

Nupur Gambhir

Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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