AD Banker Comprehensive Practice Exam

What happens to any extra premium for the waiver of premium rider?

1. Must be paid separately

2. Earns interest and increases cash value

3. Increases the face amount of the policy

4. Does not apply to cash value

The correct answer is: Does not apply to cash value

The waiver of premium rider provides important benefits by allowing the policyholder to skip premium payments in the event of total disability, ensuring that their life insurance coverage remains in force without additional out-of-pocket costs during difficult times. An essential aspect of the rider is that any premium that would ordinarily be due during the period when the rider is activated does not contribute to the policy's cash value. When the waiver of premium rider is exercised, the premiums that are waived do not accumulate as cash value in the policy. This means that they do not directly enhance the monetary benefit or savings component of the policy. The waiver is designed to protect the policyholder's coverage during a time of financial strain, but it does not financially benefit the policy in terms of cash value accumulation. As such, this understanding aligns with the notion that the premiums under this specific rider do not apply to cash value, making it the correct answer.