Waiver of premium is a clause that is commonly found in health and life insurance policies, and it is where in the event that you become disabled or ill (usually for a period in excess of 6 months) your insurance company agrees to pick up the premiums on your policy until such a point as you are able to return to work.
In fact most insurance companies that include a waiver of premium benefit will continue to pay the premiums until such a time as the plan is finished or until you would normally retire. This means that from the insured party’s viewpoint they are effectively paying a small additional premium for guaranteed insurance payments even if you can no longer make the payments.
What is the typical cost of a waiver of premium clause?
As with all things in insurance the wavier of premium clause will be calculated as a percentage risk based on the overall risk of the policy, and as such the costs will vary from policy to policy, from insurer to insurer and between every different individual covered.
Typically the cost of a waiver of premium clause will be around 2% of the total premium on any given policy but this is a “rule of thumb” rather than a specific guarantee, and you would be well advised to speak to your insurance agent or broker to determine what the costs on any specific policy, that you intend to take out, would be.
Is a waiver of premium clause worth the additional premium?
There’s no single answer to that question, and you’ll be the person best placed to judge your own financial circumstances. The question you need to ask yourself is; “If I were to become seriously incapacitated and there was no-one else liable for this (i.e. that you could sue to pay for your treatment, care and premiums etc.) could I afford to continue making payments on my insurance policies indefinitely?”
If the answer to that question is “Yes!” then you may feel that a waiver of premium clause is of no particular benefit, though if you add up the sums – you may still decide you’d rather not have to afford them.
If the answer is “No.” then you’d be wise to consider a waiver of premium clause even if it does cost a little extra, because in the unfortunate event that you suffer long lasting damage it’s the only thing that will ensure you can continue receiving your insurance benefits.
Waiver of Premium – Additional Definitions
- Investopedia – A clause in an insurance policy that waives the policyholder’s obligation to pay any further premiums should he or she become seriously ill or disabled. A waiver of premium allows people to benefit from an insurance policy, even when they cannot work…
- Answers.com – In life insurance, action by an insurance company canceling premium payments by an insured who has been disabled for at least six months. The policy remains in force and continues to build cash values and pay dividends (if it is a participating policy), just as if the insured was still making premium payments…
- InvestorWords - Insurance policy clause or option allowing a policyholder who becomes disabled or seriously ill to not pay the premiums…