Life with waiver of premium for disability?

[HealthGuy]

IHIAA Members: Life Insurance question: I recently learned that supposedly Northwestern Mutual Life offers a Waiver of Premium if the insured is disabled that offers (after the elimination period, typically 6 months) a completely paid up whole life policy (with full cash value the same face amount as the term and paid up - no more premiums required). Supposedly very few companies offer such a generous waiver of premium for disability that literally convert like this. So say an insured has 1 million of term, and they become disabled, supposedly the insured then can qualify (after an elimination period) for a fully paid up whole life policy at no further cost. Question then: If someone owns a policy like this - with a substantial face amount of term , why is a separate disablity insurance policy needed or even critical illness coverage? If someone is likely to become disabled and potentially receive a great amount in paid up whole life, why pay for an extra disability (stand alone) policy? I am in no way affiliated with Northwestern, I just was curious because I had never heard of this, and wanted another perspective.

 

[Dave020]

That is not quite accurate as I recall from my NML days. I believe that on WP benefit, the term converts to either a 65 life or 90 life policy that starts as zero CSV and the premiums are then paid by NML for the duration of the disability (so long as the insured is in the conversion period).

It is a great benefit, but not a fully funded WL product upon WP conversion.

 

[HealthGuy]

Thanks Dave but what is zero CSV ?

 

[Dave020]

Sorry, when the policy is converted to the WL product under the WP benefit, the initial face death benefit amount is the same as the fully converted term, but there is zero cash surrender value in the policy. Once NML begins paying the premiums under the WP benefit, I think that the cash surrender value and paid up additions kick in as well, over time just as if the insured were paying the premiums.

So, from the start, the disabled insured has a converted WL policy that is premium-paid by NML, but has no surrender value in the policy.

It is still a very good deal since the dividend rate is good and the policy will eventually be "paid-up" at some point in the future (or the client can take a reduced, paid up option).

 

[Guest]

...why is a separate disablity insurance policy needed...If someone is likely to become disabled and potentially receive a great amount in paid up whole life, why pay for an extra disability (stand alone) policy?

How you gonna pay the bills?

 

[HealthGuy]

Thanks Dave and Patriot for the replies and rhetorical questions, both good posts and very helpful to me.

 

[robclt]

I noticed the question about the WP on various life policies with NWM. I have a couple of questions regarding the points made and a question about "computing the amount of past premiums to be refunded". I wont bother with the specifics but this is a case where the disabled (in the process of being declared as such this week) was found to be totally disabled as of several years ago....6-7 years! He has three policies, one whole life and two term till 70 (he is 55 and has had the polices for 20+ years). The whole life, with level premiums and cash value is rather simple I assume. No more premiums and that is that. Now the term ones.... The term policies also receive annual dividends which are used to reduce the premiums....I assume these dividends are refunded also?

I also wish someone would better explain the conversion options available on the two Term 70 policies. I'm a newbie and somethings just dont "add up" for me. It seems, if nothing were changed, no more premiums would be paid and the policy would lapse at age 70. Is this not the case? If this is not true....how does it work (or what DOES happen)? Does the insured retain a "option" to convert to whole life? And if so, I imagine the insured will have to pay whatever new premium is determined for the ongoing conversion. Am I missing something?

Thanks....Confused Newbie

 

[LGilmore]

In both cases ask to see the policy and READ the rider. Each company "may" have slight tweeks to their definitions for each type of coverage and process. An answer here may not be 100% spot on. Ask to review the contract before you speak in absolutes. Also some older policies might have different terms than newer policies. Try to get the orginal policy and review it.

For example my disability and OH expense policies have definitions you can't buy today or for the last ten years. However, the company that sold them to me HAS to honor that contract (non-can) as it is written with me. So if you were looking at a current DI policy from the same company your advice might be completely different because the contract is different.

As to why you'd need DI if you had wp on a life policy. There simply isn't the same volume of money created in a policy or investment that having a job creates. The insurance and investments are funded my the job. It takes a long time for them to replace the job's income. That is why just about everybody needs DI, it is what replaces the job income.