Waiver of Premium: What Is It and How Does It Work?

Choosing to include a waiver of premium rider or benefit when taking out life insurance or critical illness cover might allow you to avoid paying premiums out of your own pocket if you can’t work due to serious illness or injury, but still see your cover continue.

Tim Leonard Published on 01 August 2022.
Waiver of Premium: What Is It and How Does It Work?

Staying up to date with the monthly premiums on a protection policy such as life insurance is essential if you want your cover to remain valid and pay out if needed. If you’re willing to pay a little extra, a waiver of premium can help ensure your policy will remain intact if paying your premium isn’t possible because you’re sick or incapacitated and can’t work.

What is a waiver of premium?

A waiver of premium is an extra insurance that covers the premiums you pay for life insurance, critical illness cover, and income protection if illness or injury means you are unable to work.

Not paying your premiums will normally mean these protection policies are cancelled and your cover ends. But if you have waiver of premium benefit in place, and meet the necessary criteria, your cover will continue if you can’t afford your premiums due to medical reasons keeping you off work for an extended period of time.

As an additional benefit that can be attached to an insurance policy, you might also see it referred to as a waiver of premium rider or premium protection.

» MORE: What are life insurance premiums?

How does a waiver of premium work?

How waiver of premium works, and the criteria that must be met to claim it, can vary between insurers. This makes it essential to check the exact terms and conditions of any waiver of premium rider before taking it out.

Generally, waiver of premium benefit only covers you if you are unable to work due to injury and illness that has occurred during the policy term, rather than because of a condition you had before taking the policy out. Simply being unemployed or made redundant won’t usually be covered.

You can’t activate a waiver of premium benefit as soon as you stop working. Most policies have a waiting period that requires that you’ve been incapacitated for between three and six months, or perhaps even longer, before the benefit can be claimed. There may also be restrictions on being able to claim for waiver of premium in the first few months after you’ve taken out a policy.

To successfully trigger the benefit, your inability to work must meet the definition of incapacity stated in your policy. You’ll also need to provide proof that you can’t work, perhaps through a medical report or a home assessment.

How can you get a waiver of premium?

You’re normally given the option to include waiver of premium benefit when you apply for life insurance or critical illness cover. It can’t normally be added on once a policy is up and running. Some insurers might not offer you the opportunity to include waiver of premium if you have a job that they consider too risky.

With income protection, waiver of premium tends to be included automatically in the policy, although you should check the terms and conditions to make sure.

How long will a waiver of premium last?

Once activated, you’re usually able to continue waiving your premiums until one of the following events occur:

  • You’re healthy enough to return to work.
  • Your condition changes so that you no longer meet the incapacity criteria set by your policy.
  • Your life insurance, critical illness or income protection policy ends.
  • You reach a certain age, often 60 or 65.

How will the insurer decide if you are unfit to work?

This depends on the level of cover you have, which will reflect how the incapacity to work is defined in your policy. Typically, the benefit will be set up on either:

  • An ‘own occupation’ basis: This means you can trigger the benefit if you’re unable to do your usual job.
  • A ‘suited occupation’ basis: It can only be activated if you can’t perform your own job or a similar one.
  • An ‘any occupation’ basis: Your premiums will only be waived if it’s judged that you’re unable to do any job.

Some insurers might evaluate your ability to work by assessing whether you’re able to perform certain everyday tasks, such as walking, bending, lifting, climbing stairs and writing.

Are life insurance waiver of premiums worth it?

Adding waiver of premium to a life insurance policy can help protect against the risk of your life cover being cancelled because you can’t afford to pay your premiums due to ill health.

You’ll almost certainly need to pay more for your premium – own occupation cover usually costs the most because it should be easier to trigger the benefit than if you have any occupation cover, which typically costs the least.

But in return, you’re taking a step to ensure your life insurance doesn’t lapse, potentially at a time when, in the worst-case scenario, a serious illness could give rise to a heightened risk that you’ll need it.

It might also be worth considering that buying replacement life cover on the same terms but at an older age is likely to result in higher monthly premiums. It may cost even more still, depending on the nature of the medical condition, if it’s one you’ll need to tell a potential insurer about.

» COMPARE: Life insurance quotes

Image source: Getty Images

About the author:

Tim draws on 20 years’ experience at Moneyfacts, Virgin Money and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more

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