Understanding the Disability Waiver of Premium
The Disability Waiver of Premium rider
takes financial stress away,
so you can still play sports
like you use to.
Disability Waiver of Premium is a rider available on most life insurance policies.However, most insurance companies have a maximum issue age on the rider of 60, so applicants over that age will not be able to add this rider.
The Disability Waiver of Premium is intended to waive the insured's premiums should he or she become disabled. Essentially, the insurance company will forgo future premiums while the insured retains the policy benefits. Remember though, there is usually a waiting period of 90 days.
The disability waiver feature differs from company to company, but often expires at age 65. The one major caveat is that most insurance companies change the definition of disability to "Any Occupation" after two years. Under this definition, total disability means not being able to work in any occupation. Therefore, if the insured is a computer consultant and their disability prevents them from working at their primary occupation, but they can still work as a checkout clerk at a grocery store, they won't receive a cent. Still confused? You can find a more comprehensive explanation of disability definitions here.
The Disability Waiver of Premium is intended to waive the insured's premiums should he or she become disabled. Essentially, the insurance company will forgo future premiums while the insured retains the policy benefits.
Given the limitations of the Disability Waiver of Premium rider, the applicant is far better off looking at his or her disability insurance through a more holistic lens i.e. the insured should have an adequate amount of disability insurance to protect the needed percentage of his or her total income. It's usually recommended that the insured cover anywhere from 50%-66% of their total income. That income, which is tax free (assuming the premiums are paid with after-tax dollars) can then be used to pay for food, household and other related expenses, including the insured's insurance policy.
The one exception to this rule is applicants with high-risk occupations. On traditional disability policies, landscapers have a higher-risk occupation than physicians and pay a much higher premium. But, with the Disability Waiver of Premium, the risk charge is the same for both occupations. In this instance, it makes sense if traditional disability insurance is unaffordable because something is better than nothing.