Policy riders for disability protection

key points

-Riders add an additional level of protection in some form, and they usually come at a modest cost. -To qualify for the waiver of premium benefit, the insured must be totally disabled

for test

-The wavier of premium rider does not suspend payment of the premium. It waives the policyowner's need to pay it. -

Policy riders for disability protection

Policy riders allow life insurance applicants to customize policies to their specific needs. Riders add an additional level of protection in some form, and they usually come at a modest cost. Among the most popular life insurance riders are those that are designed to provide additional benefits when the policyowner becomes disabled. For this purpose, insurers generally offer three riders.

Definition of Total Disability

To qualify for the waiver of premium benefit, the insured must be totally disabled. How this term is defined is explained in the policy. Some insurers define it as the inability of the insured to perform the duties of his or her own job (the so-called "own occupation" definition). Others use a more restrictive "any occupation" definition, defining it as the inability of the insured to perform the duties of any job for which he or she is reasonably suited by education, training, or experience.

Payor Benefit (Juvenile Insurance)

When a child's life is insured, an adult (usually a parent) pays the premiums. However, a payor may become disabled or die, leaving the policy open to lapse if the premium is unpaid. A payor benefit rider avoids this problem. It ensures that the insurance stays in force by waiving the premium payment if the premium payor dies or becomes disabled while the insured is still a minor. The payor benefit sets the terms for when and how long the premium waiver stays in effect. If the payor becomes totally disabled or dies before a specified age (generally age 55 or 60), then the waiver usually stays in effect until the payor recovers or the child reaches a certain age (typically ranging from age 21 to 25). --payor benefit= commonly associated with juvenile insurance, this benefit pays the policy premium when the policy owner becomes disabled or dies.

Universal Life Disability Waivers

The traditional waiver of premium rider works only when the policy premium is a fixed amount payable on a scheduled basis. As such, it cannot work with a universal life (UL) policy because of the premium flexibility that characterizes UL. A waiver of premium benefit must function in a slightly different way with UL insurance. For UL policies, a disability waiver can take one of two forms: 1. waiver of stipulated premium 2. waiver of cost of insurance The waiver of stipulated premium rider provides that a preset premium payment amount is waived if the insured becomes disabled for at least six months. The policyowner identifies the stipulated amount at the time of application. By contrast, the waiver of cost of insurance rider waives only the cost of insurance that is deducted monthly from the policy's cash value. Except for the amount waived, the provisions of the waiver of cost insurance rider are identical to the provisions of the traditional waiver of premium rider. The amount waived is the cost of the insurance deduction instead of the premium. An insurer is free to decide the ages at which it issues the waiver of premium or waiver of cost of insurance riders. But insurers generally do not issue them after age 55 or 60. A policyowner may add the rider when the policy is issued or request it at a later date. (If requested after policy issue, the insurer may require evidence of insurability to guard against adverse selection.)

Waiver of Premium Rider

The waiver of premium rider (or waiver of monthly deductions rider) is one of the most common and popular riders added to a life insurance policy. Under this rider, the policy's premiums are waived if the insured becomes totally disabled for a period stated in the rider. Most waiver of premium riders require that the insured be totally disabled for six months before the waiver begins. This is called the "waiting period." Some riders, however, require only a four-month waiting period. Premiums are payable during the waiting period. If the policyowner is still disabled at the end of the waiting period, the insurer refunds the premiums paid during the waiting period and waives future premiums as long as the disability continues. Although the insurer waives the premiums, they are in fact still paid—by the insurer. This is important, because in doing so the insurer makes sure the policy cash value continues to grow and the policy remains financially stable. Most waiver of premium riders include a maximum age restriction—age 65 or 70 is common. If the policyowner becomes disabled before that maximum age, premiums are waived up to that maximum age (or two years, if longer). If the policyowner becomes disabled after the maximum age, premiums are not waived. At that point the insured would have to decide whether to continue premium payments or elect a nonforfeiture option that would convert the policy to paid-up status

Disability Income Benefit Rider

A disability income benefit rider pays a certain sum of monthly income to the insured if he or she becomes disabled. This contrasts with the waiver of premium rider, which only waives the policy's premiums but provides no disability income. The monthly income provided under a disability income benefit rider may be paid for as long as the disability lasts or for some shorter, limited period. The insurer calculates the monthly income payment in one of two ways: -as a percent of the face amount -as a set number of dollars per month per $1,000 of coverage If the insured recovers, the monthly disability payments stop. Typically, the insurer wants to make sure the disability is permanent before beginning payments. Consequently, most insurers require a waiting period of three to six months before the income payments begin. They also require the insured to have a medical exam performed by a doctor appointed by the insurer. After the exam, the insurer decides if the policyowner/insured meets its standard for total disability. The definition of total disability varies by insurer. Most disability income benefit riders also include a provision for a waiver of premium. In other words, the disability income rider waives the policy's premiums while providing monthly income payments. So when a person buys a disability income rider, he or she does not have to buy a waiver of premium rider.

quiz

Question 1 Under a disability waiver of premium rider, an insured most commonly must be totally disabled for how long before the waiver begins? 6 weeks -6 months 10 months 12 weeks Most waiver of premium riders require that the insured be totally disabled for six months before the waiver begins. Question 2 When can Hank add a waiver of premium or a waiver of cost rider to his universal life policy? -when the policy is issued or at a later date only when the policy is issued only six months after the policy has been issued one year after the policy is issued Other than the age limitation, both UL riders can be added at policy issue or later. Question 3 Why do most insurers require a waiting period of three to six months before the disability income benefit rider begins payments? They must meet federal disability waiting period requirements. -Insurers want to make sure the disability is permanent before beginning payments. Most disabilities are permanent after three weeks; almost all are permanent after six months. They must be sure that the cost of at least six months of insurance is covered before they pay for the disability. Typically, the insurer wants to make sure the disability is permanent before beginning payments. Consequently, most insurers require a waiting period of three to six months before the income payments begin. They also require the insured to have a medical exam. These exams are performed by a doctor appointed by the insurer. Question 4 Billy, age 10, is insured under a juvenile life insurance policy purchased by his father, who pays the premiums. Which of the following riders would ensure that the insurance stays in force by waiving the premium payment if the father dies or becomes disabled? -payor benefit rider waiver of premium rider disability income benefit rider payee benefit rider A payor rider ensures that the insurance stays in force by waiving the premium payment if the premium payor dies or becomes disabled. Question 1 Which of the following best describes the difference between a disability income benefit rider and a waiver of premium rider? A disability income benefit waiver waives only the cost of insurance that is deducted monthly from the policy's cash value. The waiver of premium rider waives the policy's premiums if the insured dies or becomes disabled. *A disability income benefit rider pays a monthly income to the insured if he or she becomes disabled. The waiver of premium rider waives the policy's premiums. A disability income benefit waiver waives a preset premium payment if the insured becomes disabled for at least six months. The waiver of premium rider waives the policy's premiums if the insured dies or becomes permanently disabled. A disability income benefit rider ensures that the insurance stays in force by waiving the premium payment if the premium payor dies or becomes disabled. The waiver of premium rider waives the policy's premiums if the insured dies or becomes disabled A disability income benefit waiver does not waive a preset premium payment if the insured becomes disabled for at least six months. The waiver of premium rider does waive the policy's premiums if the insured dies or becomes permanently disabled, under the policy's definition of disability. Question 2 Which of the following riders waives the cost of insurance from being deducted from a universal life insurance policy's cash value in the event the insured becomes disabled? universal life waiver of stipulated premium rider traditional life insurance waiver of stipulated premium rider *universal life waiver of cost of insurance rider traditional life insurance waiver of cost of insurance rider The universal life waiver of cost of insurance waives the cost of insurance deducted monthly from the policy's cash value. Question 3 The payor benefit rider for a juvenile insured sets the terms for when and how long the premium waiver stays in effect. If the payor becomes totally disabled or dies before the specified age, which of the following happens? The premiums are waived for the duration of the policy. The waiver usually stays in effect until the payor recovers or the child enrolls in college. The premiums are reduced by an amount set in the policy. *The waiver usually stays in effect until the payor recovers or the child reaches a certain age. If the payor becomes totally disabled or dies before a specified age, then the waiver usually stays in effect until the payor recovers or the child reaches a certain age. Question 4 Which of the following explains why a waiver of premium rider must function differently with a universal life insurance policy than with a traditional whole life policy? Premium payments for a universal life policy are not flexible and must be paid quarterly. *Premium payments for a universal life policy are flexible, and need not be paid continuously. Premium payments for a universal life policy are flexible but continuous. Premium payments for a universal life policy are predetermined. Universal life premium payments are flexible, but not continuous.