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Waiver of premium explained

Typically, if you miss a monthly premium with life insurance products, your policy will be cancelled. Then no matter how many years of diligent payments you’ve racked up, your family won’t be able to make a claim on it after your death.

But insurers understand that difficult circumstances arise. They’re in the business of offering protection against the financial repercussions of trying times, including death and illness. And they’ve included a rider on some insurance policies - a waiver of premium - that allows you to miss monthly premium payments in the event of critical illness or serious injury and maintain your coverage. These provisions can ensure your insurance product is always there when you need it. In fact, you can think of a waiver of premium provision like an insurance policy on your ability to pay the premiums on your insurance policy.

In This Guide:

The basics

Waiver of premiums cover your monthly premiums on your insurance if you’re out or work, either until you’re working again or the policy expires, while keeping your coverage intact. They’re most common on life insurance policies but you can obtain health insurance and critical illness cover with provisions for the waiver of premiums.

You’ll have to pay extra for any policy with a waiver of premium clause, and then apply for the waiver when the circumstances arise.

How do you obtain a waiver of premium?

You’ll have to opt for a waiver of premium provision at the start of your policy - you can’t tack it on later. And you’ll pay extra for the provision on each monthly premium - often a few extra pounds a month per each hundred thousand pounds of life insurance cover.

To activate the waiver of premium when you need it, you’ll have to meet the qualifying criteria outlined in your policy’s terms and conditions and provide proof.

These criteria will vary between policies. With most policies, only serious accident or injury that leaves you incapacitated and unable to work will qualify you. This disability must have occurred during the term of the policy, and not before. For evidence, you’ll typically need to provide a signed statement from a doctor verifying your level of incapacity and when the injury or illness occurred. For more information about how insurers assess your ability to work, and thus to pay premiums, see below.

A few policies may allow you to qualify for a waiver if you’re made unemployed through redundancy.

You won’t be eligible to apply for the waiver immediately after becoming unable to work. You’ll typically need to be off work for at least three, six, or even nine months before you can claim the waiver - and paying premiums up until that point. This waiting/elimination period for the waiver of premium will be specified in the terms and conditions of your policy.

A waiver of premium benefit can expire before the term of your policy is up. Often it will do so when the policyholder reaches a certain age - typically 55, 60, or 65. The rationale is that people are more likely to become ill and incapacitated at those ages and people typically retire then.

How do insurers assess your ability to work?

Most waivers of premium will only be activated if you’re judged unable to work. But levels of protection vary between insurers - some will allow you to waive premiums if you’re unable to work in your own occupation while others will only give you the waiver if you’re completely unable to work in any job.

Waivers of premium will typically offer one of three different levels of cover, similar to the way income protection insurance does:

  • own occupation: The waiver kicks in if you’re unable to continue working in your own occupation. This is the most valuable type of cover but might be more expensive and is not offered by every insurer.
  • suited occupation: The waiver of premium is given if you can’t work in your own job or a similar one that suits your qualifications and experience.
  • any occupation: With a waiver assessed this way, you can only qualify if you’re unable to work in any field. These will be the cheapest waiver riders to add to your policy but will only allow you to suspend payments on your insurance if you’re injured or ill enough that you can’t work in any field. These are the most common conditions for waiver of premiums, which often specify that the insured person needs to be “totally and completely disabled” to qualify.

Other insurers will assess your fitness for work differently. For instance, some may only issue a waiver of premium if you demonstrate you’re unable to undertake certain physical activities, like lifting, climbing stairs, walking, writing, bending, reading, or communicating.

You should always compare life insurance policies, and read the terms and conditions concerning waivers of premium, to work out what will be the best life insurance policy for you.

How long does the waiver last?

Once the waiver of premium is activated, it will continue to cover your life insurance premiums until one or more of the following conditions is met:

  • you’re able to return to work
  • you no longer fulfil the criteria for a claim
  • the term of the life insurance policy ends (or for whole of life policies, you reach a certain age, generally a retirement age of 60 or 65, after which you wouldn’t normally be working)

When you might not need a waiver of premium

If you have income protection insurance, particularly a long-term policy, you generally won’t need a waiver of premium benefit for any other insurance products you hold. The income protection insurance will provide you with a portion of your income - generally over half - should you become incapacitated in a way that would otherwise qualify you for a waiver on your life insurance premiums. You would therefore ideally be able to continue making the payments on your life insurance.

Waiver of premium following the death of a payer

It might seem counterintuitive, but some life insurance policies can come with a waiver of premium that’s activated following death - but not of the insured person (which would deliver the payout) but of the purchaser and payer of the policy.

This applies if a parent or grandparent has obtained a life insurance policy for a minor child and paid the premiums for it. A waiver of premium in this case would preserve the child’s coverage if the parent or grandparent were to die or become disabled and therefore unable to continue paying the premiums on the policy. In these cases, the waiver may only continue until the child reaches the age that he or she could reasonably be expected to cover the premiums themselves, such as 21.