California Life and Health Insurance Practice Exam

What does a waiver of premium benefit in life insurance policies cover?

1. Premiums are waived in case of critical illness

2. Premiums are waived if the insured becomes disabled

3. Premiums are waived for the aging policyholder

4. Premiums are waived for the designated beneficiary

The correct answer is: Premiums are waived if the insured becomes disabled

The waiver of premium benefit in life insurance policies is specifically designed to relieve the policyholder from the obligation of paying premiums if they become disabled. This benefit is crucial because it ensures that the life insurance coverage remains in force, even if the insured individual is unable to work and generate income due to their disability. The concept behind this benefit is that if a policyholder becomes disabled and cannot work (often defined as being unable to perform their usual occupation or a comparable job), they may struggle financially, making it difficult to continue paying for their insurance premiums. By waiving these premiums during the disability period, the insurance company ensures that the insured maintains their life coverage without financial strain. While options related to critical illness or aging seem reasonable, they do not align with the specific purpose of the waiver of premium benefit. This feature does not apply directly to scenarios like critical illness or age-related changes, as it is explicitly focused on disability situations. Furthermore, premiums being waived for the beneficiary does not relate to the policyholder's ability to pay; the beneficiary receives benefits upon the insured’s death, but this does not influence premium payments while the insured is alive.