Legal Definitions - waiver-of-premium clause

A waiver-of-premium clause is a specific provision found in certain insurance policies, such as life insurance or long-term disability insurance. This clause states that if the policyholder becomes totally and permanently disabled for a specified period of time (often six months), they will no longer be required to pay their regular insurance premiums. Despite the cessation of premium payments, the insurance coverage remains fully active, ensuring that the policyholder continues to receive the benefits and protection outlined in their policy without the financial burden of ongoing payments during a period of inability to work.

Here are some examples to illustrate how a waiver-of-premium clause works:

• Example 1: Life Insurance Policy

  Maria has a whole life insurance policy to protect her family. After several years, she suffers a severe stroke that leaves her permanently unable to work and care for herself. Her policy includes a waiver-of-premium clause with a six-month waiting period. Once her disability is confirmed and the six months have passed, Maria no longer has to pay her monthly life insurance premiums. Despite not paying, her life insurance policy remains in full effect, providing the death benefit to her beneficiaries as originally intended, without the risk of lapsing due to her inability to pay.

  This example demonstrates how the clause ensures continued life insurance coverage, relieving the financial strain of premiums when the insured is disabled and unable to earn income.

• Example 2: Long-Term Disability Insurance

  David, an engineer, has a long-term disability insurance policy that he purchased to protect his income. He develops a degenerative neurological condition that gradually prevents him from performing his job duties. After a 90-day elimination period, his disability benefits begin, providing him with a portion of his lost income. Additionally, his policy's waiver-of-premium clause activates. David no longer needs to pay the monthly premiums for his long-term disability insurance policy itself, even though the policy continues to pay out his benefits according to its terms.

  This illustrates the clause applying to the very policy providing disability income, ensuring the policy itself doesn't become an additional financial burden during a period of disability.

• Example 3: Critical Illness Insurance with a Rider

  Sarah purchased a critical illness insurance policy, which pays a lump sum if she is diagnosed with a covered illness like cancer or a heart attack. Her policy also includes a waiver-of-premium rider. A few years later, Sarah is diagnosed with a severe form of cancer, which is a covered critical illness. After her diagnosis and a short waiting period specified in the rider, she receives her critical illness payout. Furthermore, the waiver-of-premium clause means she is no longer required to pay the annual premiums for this critical illness policy, allowing her to focus on her recovery without worrying about insurance payments.

  This example shows how the clause can extend to other types of health-related insurance, providing financial relief from premiums during a major health crisis.