What is a Waiver of Premium Rider in Life Insurance?

• 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. Many long-term care insurance and disability insurance policies also offer a waiver of premium rider.

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.

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.

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. 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.