If I become disabled or severely injured, will I need to continue paying for my life insurance premiums?
Life insurance policies may "waive" your premiums in the event of a serious disability. Often referred to as waiver of premium, it is an in-built feature or a rider that can be added to your life insurance policy. It's designed to relieve you of your premiums if an unexpected disability forces you out of the workforce. Without this benefit in place, if you were unable to keep up with your premiums your life insurance policy would typically be cancelled.
In what situations can a premium waiver apply?
There are two main type of situations in which a premium waiver can be provided:
- If you suffer disability that stops you from being able to work for an extended period of time
- If you become involuntarily unemployed
Note: Premium waivers are usually available on policies that are bought with an adviser.
What are some key conditions that my apply before a premium waiver is accepted
This will depend on the reason for the waiver.
If your disability is due to a disability or a serious injury you may be subject to eligibility criteria, including:
- Meeting the insurers disability definition e.g. inability to perform two activities daily living
- Being less than a specified age e.g. 65
- Some occupations are excluded e.g. high risk manual work
To be eligible for premium waivers related to involuntary unemployment you may need:
- To show unemployment for a set amount of time e.g three consecutive months
- To have held cover for a set amount of time already e.g. six months
- You will need to resume paying for premiums once the benefit ends e.g. after 3 months or your policy will cancel
This will depend on the policy and the type of waiver condition you have in your cover.
Premium waiver for disability
Some of the conditions you will need to meet include:
- The insurers definition of a disability. In order to qualify for a life insurance waiver of premium, you must be totally disabled. Of course, the definition of what constitutes total disability is not uniform across all policies, so make sure to read policy documents closely to understand exactly what’s involved. However, disability can generally be construed to mean that you are unable to work at all.
- Your disability lasting longer than a certain period. You’ll need to be continuously disabled for a certain period (usually between three and six months) before the waiver will take effect. You’ll need to become disabled before you reach a certain age, with the limit usually around the 60 or 65-year age mark, while you’ll also have to provide your insurer with evidence of your disability
- Providing proof of your disability. You may ned to provide proof that you have become disabled and continue to be disabled for the defined period.'
Premium waiver for involuntary unemployment
Some general conditions that are required before your premiums would be waived for voluntary employment include:
- Notifying your insurer of your redundancy as soon as you become aware of it
- Passing an exclusion period e.g. you may not be covered in the first 6 months of starting a policy.
- Showing your insurer you are actively looking for employment (an insurer may even offer its own employment agencies)
What's considered a disability under this benefit?
This will vary depending on the insurer. However, as a general rule of thumb, you are considered to disabled if:
- You are no longer able to engage in the normal duties of your work
- You are unable to work in 'any occupation'
- You are under medical care
Should I include a waiver of premium in my life insurance?
Adding a life insurance waiver of premium to your policy can be a wise decision that could save you a lot of trouble in the future. Though paying extra to have this option added to your life insurance plan might seem unappealing now, it could be the difference between ensuring whether your family’s financial position will be looked after in the future or not.
Typically, being unable to pay your premiums would result in the cancellation of your life insurance policy. However, if you were to fall ill or get injured and be unable to work, resulting in your inability to earn an income, finding the funds to pay for your life insurance premiums would become more and more difficult.
What are the disadvantages of waiver of premium?
- There is usually a six month waiting period, which means you have to be disabled for at least six months before your premiums will be waived.
- Some policies limit the amount of time you can receive the waiver.
- You’ll need to select the premium waiver at the start of your insurance contract as it cannot be added later.
- You’ll also be required to provide information from your doctor that proves your disability.
- Recurring vs new disabilities. Though a six-month waiting period normally applies, you won’t have to repeatedly endure this waiting period if you have a recurring disability. However, if you develop a new disability that is completely unrelated to an earlier problem, you will once again have to sit out the six-month period.
- Age of eligibility. A life insurance waiver of premium is generally available to policyholders aged between 18 and 60 years of age, though it will generally terminate when you reach your 65th birthday. If it is not an in-built feature of your policy, the cost of adding a waiver of premium rider to your life insurance will vary depending on a range of factors. These factors include the size and type of your policy, your age and how much risk you pose to an insurer.
- High risk professions. If you work in a high-risk profession that regularly sees you exposed to risky or hazardous situations, for example if you’re a nurse or if you work underground in a mine, it may be more difficult to attach a waiver of premium to your life insurance policy.
- Consider whether or not you need a waiver of premium on your policy. If you plan to be paying life insurance premiums for the rest of your life, this can be a very wise investment.
- Make a careful comparison. Compare life insurance policies with waiver of premium feature