Waiver of premium

Definition

Waiver of premium is a provision in a life insurance policy that allows the policyholder to stop paying premiums during a specified period if they become disabled or critically ill. This feature ensures that the insurance coverage remains in force even when the insured cannot afford to pay due to financial hardship caused by their condition. It is an important aspect of life insurance, as it provides peace of mind and financial security to individuals facing serious health challenges.

5 Must Know Facts For Your Next Test

1. Waiver of premium typically applies after a waiting period, which can range from three to six months, during which the insured must be disabled.
2. Not all life insurance policies automatically include waiver of premium; it may need to be added as a rider at the time of purchase.
3. This feature helps maintain the policy's death benefit and cash value even if the policyholder cannot make premium payments due to health issues.
4. The waiver of premium does not cover premiums for any riders attached to the policy unless specifically stated.
5. Once the insured recovers and is no longer disabled, they may need to resume paying premiums to keep the policy active.

Review Questions

• How does the waiver of premium provision support policyholders facing financial difficulties due to disability?
  • The waiver of premium provision supports policyholders by allowing them to pause their premium payments during times when they cannot work due to a disability. This means that their life insurance coverage stays intact, providing essential financial protection for themselves and their beneficiaries. By eliminating the burden of premium payments during these difficult times, it helps ensure that individuals don’t lose their coverage when they need it most.
• What are some limitations or exclusions associated with the waiver of premium provision in life insurance policies?
  • Limitations of the waiver of premium provision can include specific waiting periods before it takes effect, which typically ranges from three to six months. Additionally, not all policies automatically include this feature; some require it to be purchased as a rider. It is also important to note that this provision generally only applies to the base policy premiums and may not cover any additional riders unless specified. Understanding these limitations can help policyholders make informed decisions about their coverage options.
• Evaluate how the inclusion of waiver of premium in a life insurance policy can affect long-term financial planning for individuals.
  • Including waiver of premium in a life insurance policy significantly impacts long-term financial planning by providing a safety net against unexpected health issues. It allows individuals to maintain their life insurance coverage without worrying about affordability during periods of disability, ensuring that their beneficiaries remain protected financially. This feature encourages people to invest in life insurance without fear of losing coverage due to unforeseen circumstances, thereby contributing positively to their overall financial stability and security planning.

Related terms

disability insurance: A type of insurance that provides income replacement benefits to individuals who are unable to work due to a disability.

life insurance rider: An additional benefit or coverage option that can be added to a life insurance policy, often for an extra premium, to customize the coverage.

critical illness insurance: A type of insurance that pays a lump sum benefit if the insured is diagnosed with a specific critical illness, providing financial support during treatment.