Waiver of Premium for Disability: Meaning and Examples

What Is a Waiver of Premium Disability?

Waiver of premium for disability is a provision in an insurance policy where the insured does not have to pay the premium if they are seriously injured. The definition of disability may vary among insurance companies and policies dictate the terms and duration for premium waiver.

Note that insurance companies may charge a higher premium for policies that include this waiver.

Key Takeaways

• Waiver of premium for disability is a provision in an insurance policy that applies when the insured becomes unexpectedly disabled and cannot pay the premium.
• Policies with a waiver of premium for disability may have higher premiums.
• The definition of "totally disabled" varies depending on the insurance company and policy.
• Illness or injury must cause the disability, and typically the insured is considered "totally disabled" if they cannot perform their job.

How a Waiver of Premium for Disability Works

Two types of insurance policies commonly include a waiver of premium for disability: life insurance and disability insurance. This waiver allows insured individuals to maintain their policy even if they become disabled, unable to work, and lose their income.

For disability insurance, this waiver is particularly crucial as paying premiums after becoming disabled would not provide the insured with the intended protection.

Typically, the waiver is applied retroactively to the start of the disability. If the insured paid premiums during this period, they are usually refunded in full. Many insured individuals choose to include this rider in their policy because it ensures the policy continues to function normally, including benefits, dividends, and cash values. Once the disability ends, premium payments resume.

Issues may arise if an insurance company denies a life or disability insurance claim due to non-payment of premiums, even if the insured believed the waiver of premium was in effect. The functioning of this provision varies by contract, and each insurance policy defines "totally disabled" differently.

Experts advise insured individuals to seek legal advice if their claim is denied based on non-payment of premiums or if the insurance company disputes the individual’s disability as defined in the policy.

Example of a Waiver of Premium Disability

Totally disabled usually refers to the inability to perform the duties of one’s occupation for which they are qualified through education, training, or experience. An injury or illness must cause the disability.

For instance, if Alex’s occupation involves selling cars and an injury or illness prevents them from effectively performing tasks such as interacting with customers, they would likely be considered disabled. If Alex has a waiver of premium disability and the insurance company defines them as "totally disabled," they can utilize the waiver.