What happens to your life insurance policy if you become injured or sick and can't pay your premiums? Chances are it will lapse – unless you have a waiver of premium rider.
A waiver of premium rider covers your life insurance premiums when you are disabled. This type of rider is especially attractive if you work in an occupation that puts you at greater risk of disability.
According to the American Council of Life Insurers, 87 percent of all individual life insurance policies in force in 2010 included a waiver of premium rider.
With this type of rider, coverage does not kick in immediately after you are injured or become ill.
"Once you are covered under a waiver of premium rider, the typical policy requires a waiting period of six months after you become disabled," says Paul Wetmore, assistant vice president of Life Product Management at MetLife. "You must keep paying your life insurance premiums during that time, but you will be reimbursed for those premiums after the waiting period."
If you have a recurring disability, you won't have to undergo the six-month waiting period each time. "If you have a waiver of premium rider, there is no limit to the number of times you can use the rider," says Wetmore.
However, if you have a new disability unrelated to the earlier problem, you again will have to wait six months, he says.
Most waiver of premium riders are available on life insurance policies issued to policyholders between the ages of 18 and 60, although each insurance company has different requirements, according to Wetmore.
Terry Headley, president of the National Association of Insurance and Financial Advisors (NAIFA), says that waiver of premium riders generally terminate at age 65.
"The idea is to protect earned income, so if someone is retired, there is no earned income to protect," says Headley.
The cost of a waiver of premium rider depends on the size of the insurance policy, the type of policy, your age and your risk rating.
For example, Wetmore says on a term life insurance policy – which has lower premiums than a whole life policy – the waiver of premium rider might cost 10 percent to 15 percent of the total annual premium.
On a whole life insurance policy, the waiver of premium rider might cost 3 percent to 5 percent of the total annual premium.
Challenges for high-risk professions
If you work in a high-risk profession, it may be a little more challenging and costly to find an insurance company that will sell you a life insurance waiver of premium rider.
Headley says insurance companies use occupational ratings to underwrite waiver of premium riders. Some insurance companies use their own ratings system while others use a schedule developed by a state insurance commissioner.
If you are in an occupation with a "no" rating, it may be more difficult to get a waiver of premium rider on your life insurance policy. Firefighters, police officers and pilots are among the "high risk" occupations that typically fall into this category.
But others on this list might surprise you. They include many professions viewed as relatively risky to insurers because of the greater likelihood that illness or injury may keep you from working. Examples include:
- Air traffic controllers
- Bus and truck drivers
- Convenience store clerks
- Emergency Medical Technicians (EMTs)
- Flight attendants
- Furniture movers
- Parking lot attendants
- Postal workers
- Trash collectors
Headley says back pain and back injuries are responsible for many cases of disability leave, so a lot of occupations on the list involve lifting heavy items – or in the case of nurses, moving patients.
Other factors also may affect your ability to get a waiver of premium rider. If you are in poor health or enjoy a risky activity such as scuba diving or skydiving, you may not be approved for a waiver or may have to pay a higher premium for the rider. Your age also may play a role in whether you're approved.