Waiver Of Premium For Payer Benefit

Key Takeaways

• A waiver of premium for payer benefit allows premium payments to be paused under specific conditions.
• This benefit is commonly triggered by the payor's disability, not their death.
• Insurance companies may increase premiums to cover the added risks of including this rider.
• The waiver typically remains in effect until the insured can pay premiums or reaches a certain age.
• Read the policy carefully to be sure that you understand the limitations of the waiver.

What Is a Waiver of Premium for Payer Benefit?

When a waiver of premium for payer benefit rider is part of a life insurance policy, an insurer won't require premium payments to maintain the policy under certain conditions. In such cases, the life insurance company itself operates as a payor.

Most commonly, a waiver of premium occurs at the point of disability, not the death of the payor. If there is a designated co-payor, that individual can continue to pay the premiums. Or, if the owner was not also the payor, they can designate a new payor or begin paying the premiums themselves. The insurance company may charge a higher premium to include this waiver in the policy to compensate for the additional risks presented with a waiver of premium for payor benefit.

Understanding the Functionality of Waiver of Premium for Payer Benefit

As an example of a waiver of premium for payer benefit, consider if a parent or grandparent purchased a life insurance policy for their child or grandchild. The waiver of premium rider is not activated due to death. An insurance company may offer a paid-up policy or extended term policy depending on the type of policy and cash value. Alternatively, if the policy owner is different from the payor (parent or grandparent), then the policy owner could designate another payor or begin premium payments themselves.

The waiver might only apply until the child reached an age where they could be expected to pay the premiums alone, such as age 21. The benefit will also protect the insured’s beneficiaries, who may need the financial benefits from the policy to pay for housing, college, or other living expenses when the insured is gone.

Keep in mind that the waiver of premium for payor benefit will expire, often at age 60 or 65. To understand this and other limitations of this rider, it's essential to read the fine print of a policy. Some waivers may exclude the payment of benefits for death by a specified cause, such as especially hazardous occupations or hobbies.

Important

A waiver of premium for payer benefit prevents a permanent insurance policy from lapsing if the payor becomes disabled. There may also be a waiver of premium rider which would apply specifically to the insured, which is different from the waiver of premium for payor benefit.

Important Factors to Consider for Waiver of Premium for Payer Benefit

The waiver of premium for payer benefit may come as a clause included in a life insurance policy, or it may need to be added as a rider. The time to figure out if this policy benefit will need to be added as a rider is when a potential policyholder is discussing coverages with their insurance agent and completing the application.

Waiver of premium riders are underwritten similar to disability policies. In some cases, someone may be approved for a life insurance policy but be denied the waiver of premium benefit. In the case of a payor being different from the insured, both parties would need to submit health information for the underwriting department to determine if they are insurable.

An insurance company may offer an enhanced waiver of premium for payer rider options. For example, a company might provide a potential policyholder an opportunity to expand the waiver to cover unemployment or possibly skip payments in the event a policyholder is laid off and out of work.