A waiver of premium rider pauses premiums if you become disabled or unemployed, though conditions apply.
Updated Jul 17, 2024 · 3 min read Written by Robin Hartill, CFP® Robin Hartill, CFP®
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Robin Hartill, CFP®, is a freelance writer who covers life, pet and homeowners insurance for NerdWallet. She holds a bachelor's degree in English from the University of Florida. With more than 15 years of writing and editing experience, Robin enjoys breaking down complex financial topics for readers to help them make smart decisions about money. She is based in St. Petersburg, Florida.
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Tony Steuer is a financial wellness advocate, podcaster and speaker, and the author of "Questions and Answers on Life Insurance." His advice has been featured in media outlets including The New York Times, The Washington Post, Fast Company, Forbes and CNBC. He has a bachelor of science degree in finance from California State University and holds the following designations: Chartered Life Underwriter (CLU), Life and Disability Insurance Analyst (LA) and Certified Personal and Family Finance Educator (CPFFE).
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A waiver of premium rider keeps your life insurance policy active if you can’t make payments due to a disability or unemployment.
The rider tends to increase premiums by 10% to 25%. The waiver typically kicks in after a waiting period.Many people buy life insurance to provide financial protection for their loved ones. But what if something unexpected happens, like you get sick or seriously injured and can’t afford your premiums? A waiver of premium rider can keep your life insurance policy active, even while you’re unable to pay premiums.
A waiver of premium rider is an optional life insurance rider that pauses your premiums without causing the policy to lapse if you become totally disabled. The exact definition of total disability can vary, but generally, it’s defined as a physical or mental condition that prevents you from working.
This rider is available for most types of life insurance . In 2021, over 90% of active life insurance policies included the waiver, making it the most popular life insurance add-on, according to the American Council of Life Insurers [0]
American Council of Life Insurers . 2022 Life Insurers Fact Book.. Many long-term care insurance and disability insurance policies also offer a waiver of premium rider.
Some insurers offer a waiver of premium for unemployment rider that allows you to stop paying premiums for six months to a year if you lose your job. This rider usually kicks in only if you’ve been receiving state or federal unemployment benefits for at least four weeks.
The waiver of premium feature is activated when you experience a disability that leaves you unable to work. But if you become disabled, it’s unlikely that your insurance company will waive your premiums immediately. Most insurers require a six-month waiting period — meaning you’ll have to wait six months after you become totally disabled — before you can have your premiums waived. You’ll need to keep paying premiums during this time, but many insurers will reimburse the premiums you paid during the waiting period if your claim is approved.
After your insurer approves your claim, you can stop making payments, and your policy will remain in force. If you die during this time, the policy will pay out the full death benefit to your beneficiaries. If you have whole life insurance or variable life insurance , the policy will continue to accumulate cash value and dividends when applicable.
The rider works differently for permanent life insurance policies that have a cash value that can fluctuate, like universal life insurance and variable universal life insurance. With these types of policies, the insurer may waive the cost of insurance and administration expenses only. This will keep your policy active, though your cash value won't grow as quickly.
You’ll need to resume payments once you’re no longer disabled. However, if you become disabled again, you can file another claim to waive your premiums.
How long the waiver stays active often depends on your age when you become disabled. Many insurers will waive your premiums for as long as your condition lasts if your disability begins before age 60. For disabilities that begin between ages 60 and 65, insurers usually waive premiums for up to two years or until age 65. A waiver of premium rider typically expires at age 65, meaning that if you become disabled past this point, you’ll no longer qualify for the waiver.
Most insurers charge extra to tack the rider onto your policy, so it’s possible your premiums could drop slightly once the waiver expires.
A waiver of premium rider is often limited to people ages 18 to 60 with no pre-existing disabilities. Many insurers allow you to purchase the rider when you apply for a policy only — you can’t add it on later.
To activate the rider, you’ll need to file a claim that includes a statement from your doctor detailing your condition and confirming you're unable to work. If you’re receiving Social Security disability benefits, a notice of award letter can help support your claim.
Under most policies, the waiver kicks in if your disability prevents you from working any job for at least six months. However, some policies allow you to waive premiums if you can no longer do your regular job.
A waiver of premium rider typically increases term life insurance premiums by 10% to 25%. The exact amount varies based on factors like age, health, occupation and other factors like engaging in high-risk hobbies.
These sample rates are based on a 40-year-old in excellent health, buying a 20-year, $500,000 term life insurance policy, with and without a waiver of premium rider.
Female with WOP
Source: Covr Financial Technologies. Sample rates reflect monthly premiums and are valid as of July 10, 2024.
If you have room in your budget, it may be worth opting into a waiver of premium. The Social Security Administration estimates that a 20-year-old worker born in 2000 has about a 1 in 4 chance of becoming disabled before retirement [0]
Social Security Administration . Disability Benefits. Accessed Jul 17, 2024.. If you become disabled, a waiver of premium rider could maintain your life insurance coverage while freeing up cash for other necessities.
The rider may be especially worthwhile if you’re a younger worker buying a policy with a lengthy term. The cost is typically lower for younger people. It’s impossible to predict what will happen decades in the future, but if you’re buying a 30-year term policy at age 25 or 30, you could lock in cheaper premiums for the duration of the policy.
However, unlike disability insurance , a waiver of premium rider won’t replace your income if you can no longer work. If you’re a breadwinner, consider buying disability insurance to help with expenses, in case you get sick or injured.
Before opting into the rider, read over your insurer’s terms so you understand how the rider works and when it can be activated.
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Yes. The length of time before the rider kicks in can vary from a few months to a year depending on the policy, but a six-month waiting period is typical.
Which policies can you add a waiver of premium rider to?A waiver of premium is available for most types of life insurance and is also a common add-on for long-term care and disability policies.
What’s the difference between a waiver of premium rider and disability insurance?A waiver of premium rider pauses your life insurance premiums while keeping the policy in force if you become disabled. Disability insurance typically pays a percentage of your income, typically 40% and 80%, if you become unable to work due to an illness or injury. Some life insurance policies also offer disability riders for an additional cost that will replace a portion of your income if you can no longer work.
Is there a waiting period for a waiver of premium rider?Yes. The length of time before the rider kicks in can vary from a few months to a year depending on the policy, but a six-month waiting period is typical.
Which policies can you add a waiver of premium rider to?A waiver of premium is available for most
types of life insurance
and is also a common add-on for long-term care and disability policies.
What’s the difference between a waiver of premium rider and disability insurance?A waiver of premium rider pauses your life insurance premiums while keeping the policy in force if you become disabled.
typically pays a percentage of your income, typically 40% and 80%, if you become unable to work due to an illness or injury. Some life insurance policies also offer disability riders for an additional cost that will replace a portion of your income if you can no longer work.
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