Many insurance companies waive premiums on life insurance policies based on disability. The owner of the policy does not have to make premium payments and the life insurance policy will still be in effect. Once proof of disability has been furnished, the rider takes effect. It will continue as if the premiums are paid each month. Usually, this waiver applies retroactively to the beginning of the disability. If the insured made premium payments while the waiver was in effect, such premiums are usually refunded.
Many insureds choose to have this rider attached to their policy because for the term that the insured is disabled, no premiums are required, but the rest of the aspects of the policy continue on as if they were being made, such as the death benefit, the dividends, and the cash values. When the disability ends, the policy owner continues to make the premium payments.
Issues arise when the insurance company denies a life insurance claim based on non-payment of premiums when the insured thought that the waiver of premiums was in effect and no payments needed to be made. The Waiver of Premium provision varies by contract. Every life insurance policy defines "totally disabled" differently. It is important to speak with a life insurance attorney if the claim was denied based on non-payment of premiums and the insurer claims that the decedent was not totally disabled as defined in the policy.
What is Total Disability?
Generally, under the Waiver of Premium provision for life coverage, a person is considered totally disabled if he or she is unable to perform the material and substantial duties of any occupation for which he or she is qualified (or becomes reasonably qualified) due to education, training, or experience. The disability must be caused by an injury or sickness.
• Material duties are important and productive duties of the occupation,
• Substantial duties include quantity and quality of performance of the main, productive, and/or important duties of the occupation.
For example, if Dennis is a car salesman for a large dealership, his material duty is speaking with customers about buying the cars the dealership offers for sale. He sells and promotes the company's product – cars. This is a substantial duty of his job. The quantity and quality expectations are known.
Many people confuse the definition of Total Disability for Waiver of Premium with the definition of Total Disability for Long-Term Disability (LTD) coverage. For most standard Waiver of Premiums contracts, a person is considered totally disabled if he or she is unable to perform the material and substantial duties of his or her own job. The LTD definition of Total Disability varies by contract.
Notice of Claim
Many Insurance companies require an insured to provide a notice of claim when he or she becomes disabled. Such notice must be provided within 12 months after the employee ceases to be actively at work (the day that the employee was last physically present at work).
Many of our clients' claims have been denied because an employee was found to be ineligible for Waiver of Premium or because there was a mistake on the part of the employer about submitting appropriate documentation to the insurance company. If your claim has been denied due to non-payment of premiums while the waiver of premiums was supposed to be in effect, call us for help.