Life insurance: an important component of a long-term financial plan
Whether you are single or married, have children or not, are just starting out or are enjoying your middle years, life insurance plays an important role in your long term financial planning. It’s smart to consider buying life insurance now rather than later because it will never be cheaper than it is at this point in your life. The cost of life insurance is based primarily upon your age and your health. None of us are growing any younger and we can’t predict what our health will be like in the future.
It can be confusing trying to decide whether you need whole or term life insurance, but both can help form the framework for the safety net you are providing for your loved ones if you aren’t around to take care of them.
Term life insurance is just what it sounds like: it provides coverage for a specified time period. If you should pass away during that term, those you designate as your beneficiaries receive the payout. The policy usually has no other value.1
Whole life insurance (also called permanent life insurance), provides lifelong coverage, and the policy accrues a cash value. You pay the premiums, and upon your death, the policy pays your beneficiaries.1
But what happens if you become disabled, unable to work, and are unable to pay your life insurance premiums? To help avoid losing this important coverage, consider looking into a disability waiver of premium rider.
What is a disability waiver of premium rider?
Many life insurance policies allow you to add a provision or rider to your insurance policy waives the premium payment if the insured becomes disabled. Having a disability waiver of premium rider in place can mean the difference between being able to keep the policy in force and having to give it up if you become disabled, are unable to work, and have no income. This is one of the most common add-ons to life insurance policies because, in the event you become disabled, it allows your policy to continue functioning normally. When the disability ends, you start making premium payments again.2 Ninety percent of individual life insurance policies in force in 2018 allowed premiums to be waived during disability.3
If your policy has a disability waiver of premium option, the cost will depend on the type and amount of insurance, your age, and health. Other factors also may affect your ability to get a waiver of premium rider. If you are in a high risk occupation or participate in activities 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.2
Each company will have its own list of “risky” occupations and activities, and there may be an exclusion period during which you would not be covered if you became disabled. Some companies may attach other conditions to whether or not they will waive your premiums, such as requiring that you have been unemployed for a certain period of time due to your disability, or that you have applied for unemployment.4
Should I purchase a disability waiver of premium rider?
If the life insurance policy you own or are considering for purchase offers a disability waiver of premium rider, do your homework. Explore the exclusions and conditions associated with the waiver to be certain you meet the criteria to be eligible for the waiver. If you are eligible, look at the cost.
Thirteen percent of adults with a bachelor’s degree or more say they would be unable to pay their monthly bills if faced with an unexpected expense of just $400. This jumps to 42 percent for those with a high school diploma or less. Only about half of people have funds set aside in case of an emergency and only 20 percent said they would have sufficient funds to cover three months of expenses.5
If your financial situation is such that you would be unable to continue to pay your life insurance premiums, it may be in your best interest to look into a disability waiver of premium rider. A licensed insurance professional can help you choose life insurance coverage to fit your needs and budget as well as help you decide whether or not to purchase a disability waiver of premium rider.
- Nerd Wallet, Convertible Life Insurance, 2018
- Investopedia, Disability Rider on Life Insurance: Should You Buy? (April 30, 2020)
- American Council of Life insurers, 2019 Life Insurers Fact Book (April 30, 2020)
- Finder, Life Insurance Waiver of Premium (April 30, 2020)
- Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2018 (April 30, 2019)
Categories: Insurance, Life Insurance, Term Life Insurance