What is a waiver of premium?
A waiver of premium is a type of add-on cover, also called a ‘rider’, that can be added to your life insurance policy.
A waiver of premium can cover your monthly premiums if you can’t work because you’ve been seriously injured or are critically ill. The waiver of premium benefit keeps your life insurance policy active, giving you peace of mind that you’re still covered during difficult times.
Think of a waiver of premium rider as insurance for your insurance policy – but it will cost you. Adding a waiver of premium clause could push up the cost of your premium, so make sure you do the maths in advance.
How does a life insurance premium waiver work?
If you want to activate your premium waiver, you’ll need to apply to your insurance provider. Be aware that you must qualify under the criteria outlined in the terms and conditions of your life insurance policy.
The qualifying criteria varies among insurance providers but, in nearly all cases, you’ll only be covered for serious injury, disability or critical illness. You can only claim for these if they happen during the term of your policy, not before you took it out.
And you usually won’t be covered if you’re unable to work due to unemployment or redundancy.
You’ll need to provide evidence that you aren’t able to work. Depending on your insurance provider, this could be:
A copy of your medical records and a doctor’s report (in some cases this may be a doctor appointed by your insurance provider)
A report from an assessor sent by your insurance provider to visit you at home and confirm your situation.
How long does a premium waiver last?
Typically, a waiver of premium will last until:
You’re able to return to work
You no longer meet the ‘disability’ criteria
The term of your life insurance policy ends
You reach retirement age – usually 60-65.
Do I need a waiver of premium rider?
Before you buy waiver of premium life insurance, check whether you have cover elsewhere if you’re unable to work. For example, income protection insurance can replace some of your income if you become seriously ill or permanently disabled.
If you don’t have any form of income protection and you don’t have a significant amount of savings to draw from, a premium waiver could be worthwhile.
The last thing you want is for your life insurance policy to be cancelled if you can’t afford your premiums, especially if you’ve been making payments for a long time.
Did you know?
According to the Office for National Statistics (ONS), in 2023 the number of people economically inactive because of long-term sickness rose to over 2.5 million. That’s an increase of 400,000 since the start of the COVID-19 pandemic.
Can I add a waiver of premium to my existing life insurance policy?
No, unfortunately not. A waiver of premium rider can only be added when you take out a life insurance policy. It’s not something you can add at a later date.
What do insurance providers mean by ‘unable to work’?
Insurance providers tend to have different definitions of ‘unable to work’. That’s why it’s so important to read the terms and conditions before signing up for a waiver of premium rider.
Some insurance providers will let you claim if you’re unable to perform your usual job. Others will only give you the premium waiver if you’re unable to work in any type of job.
In some cases, insurance providers will assess the level of tasks you’re unable to do. For example, everyday activities like walking, climbing stairs, bending, getting in and out of a car, and even writing.
Check the policy details carefully before signing up, so you know exactly what the provider’s definition is of ‘unable to work’ and ‘disability’.
What else should I look out for?
It’s important to remember that every insurance provider is different. When considering a waiver of premium policy, here are some things to look out for:
Waiting period – you’ll typically need to have been ill or disabled from four weeks to nine months before the waiver kicks in. So, make sure you can cover your monthly life insurance payments during that time.
Exclusion period – some insurance providers won’t cover the first six months after the start of the policy.
Age limit – different insurance providers set different ages for when the waiver of premium will no longer be valid: usually between 60 and 65.
High-risk jobs – you might not be able to take out a waiver of premium rider if your work is considered risky or hazardous.
FAQs
What are a waiver of premium’s benefits?
The main waiver of premium benefit is peace of mind. A long period of illness can significantly reduce your income, so a waiver of premium gives you respite from paying for your life cover every month.
This can be a huge weight off your shoulders at a time when you may already have a lot to contend with. If your life insurance policy were to lapse, your family wouldn’t be able to make a claim if you died, no matter how many years of payments you’d made.
What does waiver of premium mean after death?
With some life insurance policies, the waiver of premium can be activated after your death. While that may sound rather pointless, it could apply if you’ve bought a life insurance policy for your child and paid the premiums for it.
In such a case, a waiver of premium would maintain the child’s cover if you weren’t able to continue paying the premiums. The waiver would last until your child reached an age where they could reasonably be expected to start paying the premiums.
How much does a waiver of premium cost?
You’ll pay more for your life insurance cover if you choose to add a waiver of premium to your policy. The cost varies among insurance providers.
Is a waiver of premium worth it?
Whether a waiver of premium is worth it depends on your personal circumstances and budget. If you can afford the extra cost, it’s something to consider for your own peace of mind.
Like most life insurance policies, the younger you are, the less it’s likely to cost you. So, if, at a young age, you can lock in a policy at a fixed price for a lengthy term, it might be worth it.
What’s the difference between waiver of premium and critical illness cover?
Critical illness cover pays a tax-free lump sum if you’re seriously injured, or are diagnosed with an illness listed in your policy, and are unable to work. A critical illness pay-out is designed to offer financial support during a difficult time in your life. This could be used to cover lost earnings, pay for treatment or make necessary changes to your home.
A waiver of premium only covers the cost of your life insurance premiums, so your policy can remain active.
Both types of cover can be added at an extra cost to your life insurance policy.
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With more than eight years’ experience in writing and sub-editing content, Karen started her career in fashion before making the move to insurance. She now specialises in producing clear, engaging content that helps people make better financial decisions.
Karen’s areas of expertise include insurance products, such as car insurance, travel insurance and life insurance, as well as utilities such as energy comparison.
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