How does a life insurance “waiver of premium” work?

At the time you start a life insurance policy there are a range of options to choose from. For example you can add cover for major illness or permanent disability, select the type of premium you would like, and more. Another option you will often see is called “waiver of premium” (also called “we pay your premium” by some life insurers). We’ll take a quick look at how this works.

Life insurance is pretty simple - you are covered for as long as you pay your premiums, and the insurer cannot stop your policy or reduce your cover if you get ill. This provides good protection and peace of mind, however there are times where paying life insurance premiums can become very difficult – putting your life insurance policy at risk.

One of the most common reasons for a person being unable to pay their life insurance premiums is in the case of ill health. This can quickly cause an inability to work, which means that income stops. This can make it very hard to maintain life insurance – even though in the case of ill health, it is needed more than ever.

One solution is “waiver of premium”. This can be added to your policy when you set it up, and if on your policy, means that the insurer will waive your life insurance premiums while you are too ill to work. This will start after a “waiting period” (which you can choose). This is simply the amount of time you need to be unable to work for before the claim payments will begin – for example if your waiting period is 4 weeks, you need to be disabled for this length of time before the insurer will begin to pay your life insurance premiums.

You can also choose the “payment period”, which is the amount of time the life insurer will continue to pay your life insurance premiums for. You can select this (there will usually be a range of options) and the best protection is usually a “till age 65” payment period. This, as the name suggests, means that the insurer will make your premium payments all the way until you are 65 – providing the ability to keep your life insurance policy for the long term.

Making a Life Insurance Claim

When setting up life insurance, naturally people hope that a claim will never be needed. However in some cases it is – so we’ll take a quick look at the usual requirements a New Zealand life insurer has for assessing a life insurance claim.

First, there are several documents that the life insurer will need. We’ll take a brief look at each of these:

1. First, the insurer will need a copy of the deceased person’s Death Certificate. In some cases a Death Certificate will have been issued as “subject to Coroner’s findings”. If this is the case then the insurer would usually need to also receive a copy of these findings in order to assess the claim.

2. The life insurer will also ask that you provide them with a copy of the life insurance policy document. This will have been sent to you when you started your policy – and it’s important to keep this in a safe place. If you don’t have a copy of the document it will be OK (the insurer can generate another one for you) – however this could lead to delays in the assessment of the claim.

3. Finally, the insurer will require some form of proof of identity and age of the deceased person. If the insurer has already gathered this (for example during the application process) they should not require it again, however if this has not been previously provided the insurer will need to see it.

Also, in some cases, a life insurance or health insurance claim might be made because the insured person has not yet passed away, but is terminally ill. If this is the case, the insurer will need to see a letter from the insured person’s medical practitioner stating that the insured person is likely to die within 12 months (or whatever duration their policy specifies).

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