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A Different Kind of Disability Insurance

By David F. Woods, CLU, ChFC, president of the LIFE Foundation

This being Disability Insurance Awareness Month, it’s appropriate that considerable attention is being paid to disability income insurance. Too few Americans own it and those who do, too often own too little. But there's another kind of disability insurance which is little known, little appreciated and of potentially great value. I'm talking about something with the legalistic name of "Waiver of Premium".

Waiver of Premium is something for which you can usually pay a little extra to attach to a life insurance policy. It provides for the forgiveness of premium payment obligations during a time of your inability to perform the duties of your occupation as a result of an injury or sickness. Generally speaking, the waiver of premiums would begin after a 6 month period of disability, but very often the contract provides for the repayment to you of any premiums that came due and were paid during that period.

This "rider", as it is called, can generally be attached to any permanent or term insurance policy at time of issue. In the event of your disability, the premiums paid by the company on your behalf are not a loan or an advance. So when you are no longer disabled you simply pick up the payments where the company left off. In the meantime, if you died, your beneficiary would receive the full death benefit under the policy. If your policy is a permanent policy, the cash surrender values would continue to grow just as they would if you were paying the premiums. The long term savings values in your policy would continue to grow uninterrupted with the same tax deferred advantages as if you were paying the premiums.

Furthermore, many insurance companies offer a provision on their permanent policies that allows you to increase your coverage by a prescribed amount at certain future dates without having to prove that you are insurable. In most companies, if your policy also contains the Waiver of Premium provision and is paying the premiums because of your disability, the increases would be exercised automatically as they became due, the premiums would be waived, the increased tax free death benefit would be paid at your death and the cash values of the additional policy would grow just as they would if you were paying the premiums.

And all of this would be in addition to the income you would be receiving from any disability income policies you might own. In short, the insurance industry is able to provide you with a financial security package that would keep your family in their home and way of life at your death. If you became disabled, your insurance company would pay you an income, guaranty the payment of your life insurance and disability income insurance premiums, guaranty the exercise of any life insurance increases contained in your policy and guaranty the continuation of your long term savings plans if you own a permanent insurance policy.



Very good information about the economic realities of becoming disabled. How important it is for those in the business to communicate the living value of permanent life insurance when someone does lose their ability to earn a living. Permanent life insurance can increase their retirement/pension benefit and continue to build up a liquid tax favored accumulation plan while someone is disabled for the rest of their life!!