What is a Waiver of Premium?
Waiver of Premium
A waiver of premium is a provision in an insurance policy that ensures the continuation of the policy’s effectivity in the event that the policyholder can no longer pay the premiums. This rider that is attached typically to a life insurance policy protects policyholders from being left uncovered. A waiver of premium is one of the beneficial add-ons for insurance policies as it saves the policyholder from financial burdens of paying bills and other needs when he or she loses income due to illness or injury. It may be an optional add-on to the policy but people often find it wise to get this kind of protection.
There are instances when a waiver of premium clause is automatically included in the insurance policy. While in some circumstances, the provision is included as an additional rider. The waiver of premium can be added to the policy for an additional cost usually for a small extra fee. A policyholder often maintains paying premiums for a specified period of time and when the required period is over, the obligation to pay monthly premiums will be waived. When a policyholder loses income due to unemployment or illness which incapacitates him or her to pay, the policy will still be effective while allowing the policyholder to stop paying for the policy. It is important to note that insurance companies have different ways of defining a policyholder’s “incapacity”.
There are certain conditions which insurance providers impose to make the waiver of premium valid. Physical condition and age are among the few restrictions that could make the waiver of premium void. For example, an insurance company may impose that the policyholder must be below 55 years of age in order to get the waiver of premium option or that he or she must be healthy confirmed by physical exams. Other example of a waiver of premium restriction includes that the loss of income by the policyholder should at least be six months for the rider to apply. If for example a policyholder becomes disabled for 6 months or more, the policy will still continue to take effect as long as the incapacity lasts even if without premium contributions.
When a policyholder regains his or her former health condition and is physically fit to return to work, he or she will not be required to indemnify the insurance company for the payments missed during the illness. No extra premiums are paid after the illness and the insurance policy continues to take effect as if there are no missed payments. Waiver of premiums applies to temporary and permanent incapacity to pay premiums due to specified causes. The waiver is not designed to last for a specific period of time as it will continue to take effect even if the policyholder is incapacitated to pay premiums for the rest of his or her life. The financial protection which the waiver of premium provides doesn’t rely on the monthly payments a policyholder makes to be effective, it is designed to make an insurance still binding and to provide protection if or when the policyholder can no longer make monthly payments.