Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Waiver of Premium Rider

What it is:

A waiver of premium rider is language in an insurance policy that allows the insured to stop making premium payments if he or she becomes ill or disabled.

How it works (Example):

For example, let's assume that John Doe has a life insurance policy with Company XYZ. He buys a waiver of premium rider. John then makes his monthly payments like clockwork for 10 years. Then, he gets hit by a car and can no longer work. Because of the waiver of premium rider, John Doe's life insurance does not lapse, and when he dies a year later, his beneficiaries receive the proceeds of his life insurance policy.

Waiver of premium riders cost extra and they may have certain time or age limits, so it's important to read the fine print. Often, the disability has to last at least six months.

Why it Matters:

A waiver of premium rider prevents a whole or universal life insurance policy from lapsing just because the policyholder has become disabled or can no longer work. In turn, it protects the insured's beneficiaries, who may need the eventual proceeds from the policy to pay for college, housing or other living expenses when the insured dies.