What it means
Parents and grandparents often buy a life or savings policy on a child, so the child has cover and a cash value that grows over the years. The adult who buys the policy and pays the premiums is called the payer.
If the payer dies or becomes disabled, the payments could stop, and the policy might lapse. The payer benefit rider is designed to prevent that outcome.
When the rider is triggered, the insurer waives the remaining premiums until a stated date, often when the child reaches a given age. The policy then carries on as if the premiums were still being paid.
The rider is priced according to the payer's age and health, not the child's, because it is the payer's death or disability that triggers the benefit. An older payer will therefore pay more for the rider, and may be refused it altogether.
Insurers typically set an age limit for the payer, and the definition of disability follows the same rules as other waiver riders. Some insurers also offer a similar benefit for the death of the payer only, which costs less.
Families should compare the options, because the cheaper version does not help if the payer is disabled but alive. The benefit has no value if nobody is relying on the premium payments, so it suits cases where one adult funds the policy.
It does not replace life insurance on the payer, which protects the family in other ways. A sensible plan therefore looks at both the child's policy and the payer's own cover.
In practice
Real-world examples.
Example
A father buys a whole of life policy on his 5-year-old daughter with annual premiums of $1,200 and adds a payer benefit rider. If he dies, the insurer pays the remaining premiums until she reaches a stated age, so her policy continues and its cash value keeps building. The father pays only a small extra amount each year for that assurance.
Example
A grandmother funds an education savings policy for her grandson and adds the rider. Several years later she is diagnosed with a serious illness, and the insurer waives the premiums after the waiting period, protecting the plan. Her grandson's savings goal stays on track even though she can no longer help.
Example
A self-employed parent pays for a child's policy and worries about irregular income. The rider means that a long-term disability will not force the policy to lapse, although the parent still needs separate income protection for the household. The rider protects the child's policy only, not the family's living costs.
Case study
Seen in the real world.
Willowbrook Family Planning is an illustrative, fictional advisory firm. It helped a client set up a $50,000 whole life policy for her young son, with annual premiums of $900 and a payer benefit rider costing an extra $40 a year.
When the client was seriously injured eight years later, she could no longer work. After the waiting period, the insurer began to waive the $900 premiums and the policy continued to build value for her son.
Without the rider the family would have had to find $900 a year or let the plan end. The illustrative lesson is that a small additional charge can protect a long-term commitment from a single event affecting the person paying. Willowbrook now asks every client who buys a child's policy whether the payer rider is included and records the answer in the file.
Watch out
Common mistakes.
- Assuming the rider covers the child, when it is triggered by the death or disability of the person paying the premiums.
- Forgetting that the rider usually has an age limit for the payer and ends if the payer is older than that when the event occurs.
- Treating the rider as a replacement for the payer's own life or disability insurance, when it only keeps the child's policy going and does nothing for the household budget.
Questions
People also ask.
Who is the payer in a payer benefit rider?
The payer is the adult who owns the policy and pays the premiums, and the rider is priced on their age and health. It is not always the child's parent, and grandparents can act as payers too.
What happens if the payer recovers from the disability?
The waiver usually ends when the disability ends, and the payer resumes paying the premiums. Policy documents explain how the insurer will check whether the disability continues.
Is the rider available on every policy?
No, it is most common on policies bought for children, and each insurer sets its own conditions and limits. Buyers should ask for the wording and check the payer's age limit.
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