If you are considering buying a life insurance policy, you already know that protecting your loved ones is a top priority. The life insurance cover helps to provide a financial safety net if something happens to you, which means securing the right protection to a critical step when you have a partner, children or someone else who relies on your income.
Buying a life insurance policy is no longer complicated, but there are still some details you need to keep in mind to ensure that you buy the right insurance policy for you.
One of the decisions you have to make is whether or not to add any riders to your life insurance policy. These optional benefits can be added to customize your policy and better meet your needs. However, they often add an extra cost to your premium each month, so if you are considering adding some paid skiers to your insurance, you want to make sure they are actually right for you.
Riders such as convertibility, accelerated death benefit and premium exemption from disability are some of the most common you will encounter.
Depending on your needs, the premium waiver can be an excellent complement to your life insurance. Find out what each insured person should know about the driver before buying it.
1. What is the waiver of premium riders?
The premium waiver – also known as the premium waiver for the disabled – is an optional addition to your insurance that helps prevent your life insurance cover from expiring if you become unable to continue the payments. If you become too ill or injured to work, this rider will take effect and cover your life insurance premiums. Eligible scenarios would include things like serious injury, permanent illness or any other catastrophic life change that results in you becoming disabled.
When you consider that one in four adult Americans lives with a disability, the benefit of this rider becomes clear. Instead of using your limited funds to pay your premiums so that your life insurance stays active, you can use that money to budget for living expenses and much-needed medical care.
The waiver of premium riders costs extra per month, and the price will vary depending on your health and ultimately the likelihood of disability while the policy is in effect.
2. How does the premium exemption from disability benefits work?
The individual conditions for using the exemption from premium benefits vary from operator to operator, so it is important to read the fine print.
There are no fees associated with availing this benefit (that’s what the extra premium cost covers), and you can file a claim more than once. But there is usually a six-month waiting period before you can get a premium exemption.
Usually, the benefits for this rider end when the policyholder is no longer disabled. If the disability proves to be long-term, the premium payments are covered up to a certain age, for example 65 or 70 years.
When you submit a disability claim, your insurance company will waive the premiums only after the waiting period has been met and your claim has been approved. If your application is approved, they will refund the premium payments you made during the waiting period.
If you make more than one claim for a recurring disability, it can be considered a continuation and depending on how long it has been, you may not have to meet the 6-month waiting period. On the other hand, if you make a claim for a new disability that is not related to a previous injury case, a new waiting period will take effect.
The procedure for filing a claim depends on the specific life insurance company you choose, but common requirements include a doctor’s statement and a message from the Social Security Administration, both of which certify your disability.
3. Who qualifies for the exemption from premium riders?
The waiver of premium riders is usually available to adults between the ages of 18 and 60 who do not have a previous disability. It can only be purchased when you first apply for insurance – not added at a later time. For example, Haven Life offers waivers of premium rides as an optional add-on for certain states in the Haven Term application process. (Separately, but relatedly, Haven Life also offers disability insurance.)
4. How much does the premium exemption cost?
The cost and availability of waiver of premium riders will depend on a risk assessment based on your age and physical health. This risk assessment is necessary because a waiver from premium riders is intended to cover an unforeseen disability, not a disability that seems very likely at the time of purchase.
Fortunately, the disability exemption for the disabled is quite affordable for most policyholders from month to month. On a life insurance policy, the rider can cost between about 15% and 25% of your monthly premium.
For example, if you are a healthy 35-year-old man who buys a 20-year-old insurance policy for $ 500,000, coverage would start at about $ 20.72 per month. Therefore, if the rider is available in your state, it would cost an additional $ 3 per month to add a waiver from premium riders.
It is important to remember that your insurer will consider your age, health history, occupation and activities when determining the appropriate cost for coverage and riders.
5. Is it worth giving up premium riders?
Whether the waiver of the disability premium is worth it to you depends on your financial resources and priorities.
The tricky part of deciding whether to buy insurance, or any insurance-related product, is that no one knows the future. But all life insurances that are worth having are also worth keeping if and when you become disabled – and this is where the premium waiver comes in. It is essentially a disability insurance policy for your life insurance policy. And more peace of mind is never a bad thing.
About Tom Anderson
Tom Anderson is an award-winning financial journalist whose work has appeared in CNBC.com, Kiplinger’s personal finances, Money, Eyeglass and Wired. He was a 2008-09 Knight-Bagehot Fellow in Economics and Business Journalism at Columbia University.
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