Waiver of Premium for Disability: Meaning and Key Points

Key takeaways
* A waiver of premium for disability is a policy provision that stops premium payments if the insured becomes seriously disabled.
* Insurers often charge more to include this waiver.
* Definitions of “totally disabled” vary by policy; typically the insured must be unable to perform their occupation due to illness or injury.
* Waivers are common on life and disability insurance and usually apply retroactively, often entitling the insured to a refund of premiums paid during the disability period.

What is a waiver of premium for disability?

A waiver of premium for disability is a rider or clause in an insurance policy that allows the policy to remain in force without the insured paying premiums while they are disabled. Its purpose is to keep coverage—and benefits such as death benefits, dividends, and cash values—active when the insured loses the ability to earn income because of illness or injury.

How it works

• Applicability: Most often attached to life and disability insurance policies.
• Trigger: The waiver takes effect when the insured meets the policy’s definition of disability. This usually requires that an injury or illness prevents the insured from performing the duties of their occupation.
• Retroactivity and refunds: The waiver commonly applies retroactively to the start of the disability. If the insured paid premiums during that period, insurers often refund those payments.
• Resumption of premiums: When the disability ends, the policy owner resumes paying premiums.
• Cost: Adding a waiver typically increases the policy’s premium.

Common variations and potential issues

• Definition differences: Insurers define “total disability” differently—some use any occupation standard, others use own-occupation standard, and yet others base it on education, training, or experience.
• Disputes: Problems can arise if an insurer denies a disability claim or asserts the insured was not disabled under the policy’s definition. Denials can lead to lapses in coverage or claims for non-payment of premiums.
• Documentation and proof: Policies usually require medical evidence and sometimes waiting periods before the waiver applies.

Example

If Alex, who sells cars, becomes ill and cannot handle customer interactions or other essential sales duties, Alex may be considered totally disabled under many policy definitions. If Alex has a waiver of premium and the insurer determines Alex meets the policy’s disability standard, the insurer would stop requiring premiums and may refund any premiums paid during the disability period.

What to do if a waiver claim is denied

• Review the policy: Check the exact definition of disability, waiting periods, exclusions, and required proofs.
• Gather documentation: Medical records, employer statements, and proof of functional limitations help support a claim.
• Seek professional help: If a denial seems incorrect, consider consulting an attorney experienced in insurance disputes or a licensed insurance professional.

Considerations when buying a policy

• Compare definitions of disability (own-occupation vs. any-occupation).
• Evaluate the cost of adding the waiver versus the protection it provides.
• Check waiting periods and whether the waiver is retroactive.
• Consider the insurer’s reputation for handling disability claims.

Conclusion

A waiver of premium for disability can preserve valuable insurance protection during periods of disability, but coverage details and definitions vary widely. Read policy language carefully and weigh costs and definitions before adding the rider.