Waiver of premium is a feature that is commonly offered on individual DI policies. In fact, I would bet that most of us hardly give the feature a second look on a DI illustration. It’s just assumed that if the client is disabled, the premium payments will stop until the client is back to work, and any premiums sent in when the client was initially disabled will be refunded. But for such a simple policy feature, there are actually significant differences between carriers in how it works.
Consider the following scenario:
Your client, a hairstylist, has a stroke. After three months of recovery, she is able to start working on a part time basis and continues to do so for a full year. How might the benefits under waiver of premium vary by carrier assuming a policy with a 60 day elimination period and a monthly premium of $75?
- White Collar Carrier: $1,125 in savings
- Blue Collar Carrier #1: $225 in savings
- Blue Collar Carrier #2: $0 in savings
Why the disparity in savings?
- White Collar Carrier: This carrier will waive all premiums due while the client is receiving disability benefits (full or partial) as well as recovery benefits. After the waiting period has been completed, the carrier will refund premiums paid after the date of the client’s disability. This saves the client $1,125 during a time of limited income as well as additional expenses. Total Savings: $1,125
- Blue Collar Carrier #1: This carrier will waive premium due after the client has been totally disabled for the elimination period. Premiums are not waived while the client is partially disabled. This client would be able to have one month’s premium waived while totally disabled and receive a refund of the prior two month’s premiums after the date of her disability. This would save the client $225 however she would have to continue to pay the premium on her policy while only able to work part time and partially disabled. Total Savings: $225
- Blue Collar Carrier #2: This carrier will waive the premiums due after 90 days of continuous total disability (even with a 60 day elimination period). Premiums paid during the 90 day period of total disability will be refunded. Unfortunately, since the client was not totally disabled for 90 days, she would not be eligible for have any premiums refunded. Also, since she is only partially and not totally disabled, she would not be eligible to have premiums waived. This carrier would save the client $0. In order to keep her policy in-force, she would have to continue to pay the premium on her policy while working part time and partially disabled. Total Savings: $0
These are generalizations, meant to illustrate the importance of contract language so please check the specific product language of the carrier you are selling (or call and ask us)! Also, I firmly believe that some coverage is always better than none at all. If the premium of a white collar carrier policy is prohibitive, then it would be in the client’s best interest to have a blue collar type policy even if the definitions are not as comprehensive.
Call on DIS for the advice you need to protect your clients’ paychecks! Looking for more detailed information about policy design? Read my previous articles: Multi-Life: The Discount Deal of Disability Insurance and The $27,600 Difference: Why Disability Insurance Policy Language Matters.