Fred W. Brisker & Associates | Customizing Life Insurance with Policy Riders

Customizing Life Insurance with Policy Riders

When most people think of life insurance, the first thing that usually comes to mind is, "How much do I need?" However, there are other aspects of life insurance policies that provide important benefits and are worth considering.

For example, riders essentially allow policy owners to give themselves and their beneficiaries added protection in the face of certain events. Among the large number of riders that life insurance companies offer, one of the more frequently utilized is the "waiver of premium."

The waiver of premium rider protects you in the event that you are disabled and can no longer afford to pay your life insurance premiums. Not only does the insurance company pay your premiums pursuant to the terms of the contract, but if you own a whole life policy, the policy cash values and dividends generally continue to grow. These increasing policy values can be a ready source of income that you can use to help pay your expenses if you are disabled and can no longer work. You could access these values through loans or surrenders. (Note that loans and withdrawals may result in adverse tax consequences and may carry interest. Cash values and death benefits may be affected, too.)

Eligibility Requirements

Like an applicant's insurability, the availability of the waiver of premium rider may also be based on certain risk factors, such as general health and past medical history. Once issued, most policies contain important eligibility requirements before the waiver of premium rider will take effect. Policies generally contain a specific waiting period (e.g., six months) before premiums begin to be paid under the rider. Some policies apply waiver of premium coverage differently for a disability occurring prior to age 60, compared to one occurring between the ages of 60 and 65. Under many policies, the waiver of premium provision terminates at age 65. While the waiver of premium rider on term and whole life policies will generally cover the entire premium, the waiver may work a little differently on other types of policies, separating the premium waiver for the cost of insurance from that associated with the cash value or investment fund.

The definition of "disability" in your policy is also crucial, because it determines when your obligation to pay premiums ends. The key is usually whether you are "totally disabled" under your policy's definition. While some policies consider total disablement to be when an illness or injury leaves you unfit for your profession, other policies may contain a clause that states you must be unfit for any type of work.

Policy riders tend to take a "back seat" when planning insurance needs, because so much of the initial focus is on how much coverage is necessary to provide adequate protection. However, part of the process of determining adequate protection should also involve taking advantage of the opportunities to customize your life insurance policy so it fully meets your needs.

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