Customizing Life Insurance with Policy Riders

When many people consider life insurance, the first thought that usually comes to mind is, “How much is enough?” However, there are other aspects of life insurance policies that can provide important benefits.

For example, riders essentially allow policy owners to give themselves and their beneficiaries’ added protection if certain events happen. Among the surprisingly large number of riders that life insurance companies offer, one of the more frequently utilized is the “waiver of premium.” 

The waiver of premium rider protects you in the event that you are disabled and can no longer afford to pay your life insurance premiums. This rider has been compared to having a miniature disability policy on your life insurance contract. Not only does the insurance company pay your premiums pursuant to the terms of the contract, but if you own a whole life policy, the policy cash values and dividends generally continue to grow. These increasing policy values are a ready source of income that can be used to help pay your expenses if you are disabled and can no longer work. You could access these values through loans or surrenders. (Note: Loans and withdrawals may result in adverse tax consequences and loans carry interest. Cash values and death benefits may also be affected.)


Eligibility Requirements

Like a life insurance applicant’s insurability, the availability of the waiver of premium rider may also be based on certain risk factors, such as general health and past medical history. In addition, once issued, most policies contain important eligibility requirements before the waiver of premium rider will take effect. Policies generally contain a specific waiting period (e.g., six months) before premiums begin to be paid under the rider. Some policies apply waiver of premium coverage differently for a disability occurring prior to age 60, compared to one occurring between the ages of 60 and 65. Under many policies, the waiver of premium provision terminates at age 65.

While the waiver of premium rider on term and whole life policies will generally waive the entire premium, the waiver may work a little differently in other types of policies, separating the premium waiver for the cost of insurance from that associated with the cash value or investment fund.

The definition of “disability” in your policy is also crucial, because it determines when your obligation to pay premiums ends. The key is usually whether you are “totally disabled” under your policy’s definition. While some policies consider you totally disabled when an illness or injury leaves you unfit for the type of work that you have always done, other policies may contain a clause that says you must be unfit for any type of work.

Riders to the Rescue

Policy riders tend to take a “back seat” when planning insurance needs because the main focus is to obtain coverage for adequate protection. Determining adequate protection, however, should also involve customizing your life insurance policy with riders that can provide additional benefits to help meet your needs.