A policyowner has a $200,000 life insurance policy with a Waiver of Premium rider. She becomes totally disabled and is unable to work. Her policy has an annual premium of $1,200, payable on January 1st. If she becomes disabled on March 15th, and the waiting period for the rider is 6 months, when will the first premium be waived, and what will happen to any premiums paid during the waiting period?
- APremiums will be waived starting January 1st of the following year; all premiums paid during the waiting period will be refunded.
- BPremiums will be waived starting with the premium due immediately after the 6-month waiting period, and any premiums paid during the waiting period will be refunded.
- CPremiums will be waived starting September 15th; premiums paid from March 15th to September 15th will be refunded.
- DPremiums will be waived starting September 15th; no premiums paid during the waiting period will be refunded.
Show answer & explanationAnswer & explanation
Correct answer: B. Premiums will be waived starting with the premium due immediately after the 6-month waiting period, and any premiums paid during the waiting period will be refunded.
The Waiver of Premium rider typically has a waiting period (e.g., 6 months). If the insured is still totally disabled at the end of this period, the insurer will waive all premiums that become due during the period of disability, including those that fell within the waiting period, and refund any premiums paid during the waiting period. The first premium waived would be the one due immediately after the waiting period ends, but the refund would cover premiums paid during the waiting period.
Why the other options are wrong
- A. Incorrect. The waiver begins after the waiting period, not necessarily the following year's premium due date, and refunds are for premiums paid during the waiting period.
- C. Incorrect. The waiver begins after the waiting period, and the refund covers premiums paid during that period, not necessarily from the exact date of disability.
- D. Incorrect. Premiums paid during the waiting period are typically refunded.
Waiver of Premium Rider
A rider that waives premium payments if the insured becomes totally disabled, typically after a waiting period, and often retroactively refunds premiums paid during the waiting period.
- Requires total disability (as defined by policy).
- Includes a waiting period (e.g., 6 months).
- Premiums are waived if disability continues past waiting period.
- Premiums paid during waiting period are usually refunded retroactively.
Memory trick: Wait, Then Waive, and Refund!