Crisis Waivers

How Crisis Waivers Work

While annuities offer many benefits to customers, there are drawbacks as well. A major concern for many people that keeps them from including annuities in their retirement plan is the lack of liquidity.

It can be stressful to commit a significant amount of money to a contract when there may not be an easy way to get that money back in the event of a catastrophe or a dramatic change in circumstances.

A crisis waiver alleviates this stress. Adding a waiver to your contract creates a sort of escape hatch if you need to access your money sooner than planned.

Insurance companies offer crisis waivers that cover some of the most common concerns retirees face, allowing consumers to strike a balance between securing their future and maintaining resources for unexpected life events.

Types of Waivers:

• Death
• Hospital
• Nursing home
• Terminal illness
• Disability
• Unemployment

Say, for example that, just a few years after purchasing your annuity, you are diagnosed with a terminal illness. A product that slowly pays out over many years no longer makes sense for you, and you may need that money to pay for medical expenses.

A crisis waiver could allow you to withdraw your investment without facing surrender charges.

Crisis waivers increase the liquidity of your annuity, and may alleviate your concerns about your ability to access your money in the event of an emergency.

Brandon Renfro, Ph.D., CFP®, RICP®, EACo-Owner of Belonging Wealth Management

As a Certified Financial Planner™ professional and Retired Income Certified Professional®, Brandon Renfro is well-versed in the financial information and strategies needed to meet retirement goals. In addition to co-owning Belonging Wealth Management and assisting clients, Brandon writes regularly for financial publications.

How Are Crisis Waivers Different from Riders?

Some insurance companies refer to crisis waivers as riders. However, while waivers are contract enhancements that allow insurers to charge an additional fee, they do not work the same way that riders do.

Crisis waivers permit the annuity owner to withdraw money before retirement without incurring a surrender charge, whereas riders provide benefits to cover a range of financial and estate planning needs.

Riders allow annuity buyers to extend the basic coverage of their contract to better align with their needs. These enhancements fall into two broad categories: living benefits and death benefits.

For example, a guaranteed minimum income benefit specifies a minimum payout during the life of the annuity owner, whereas a guaranteed minimum death benefit permits a new annuitant to receive payments if the owner dies during the accumulation period.

Crisis waivers, like riders, provide protection in the event of unforeseen circumstances, but they are not an extension of insurance coverage. Rather, they guarantee the surrender charges will be waived if the annuity owner needs to take a portion of the cash value for nursing home expenses, terminal illness medical costs or other qualifying life events.

Think of riders as an add-on to upgrade your contract and waivers as a cancellation allowing you to get out of the contract.

Long-Term Care Rider vs. Nursing Home Waiver

Some common types of riders and waivers can be easily confused, and it is important for prospective customers to know the difference.

Long-term care riders are a popular choice that provide benefits to cover a range of long-term care services. These riders have limitations depending on the insurance carrier and the contract terms. 

Nursing home waivers, on the other hand, waive surrender charges for the surrender of the full contract or a specified number of withdrawals prior to annuitization.

The annuity contract will contain the full details of any waivers or riders; be sure to read the terms and limits carefully.

Waivers are generally less complicated than riders. For example, in California, agents who sell annuity contracts containing long-term care riders must complete additional training, whereas no such special training is required to sell contracts with nursing home waivers.

Disability Income Rider vs. Disability Waiver

It can also be easy to confuse a disability income rider with a disability waiver.

A disability income rider ensures that your income benefits will be higher for a limited period of time if you become disabled and lose your income. 

A disability waiver simply waives surrender charges for withdrawals if you develop or are impacted by a new disability.

Insurance companies have different criteria for assessing a disability. For example, some insurers may consider a person with a disability if they can’t work at all, while others may consider a person with a disability if they can’t work in their current occupation.

Waiver of Surrender Charge

Some contracts will refer to a “waiver of surrender charge rider” or simply a “surrender charge waiver.” This term encompasses crisis waivers, as well as other types of surrender charge waivers the insurer may offer, such as asset transfers.

Surrender charges, which are fees assessed for withdrawing funds during the surrender period, are typically waived for the withdrawal of up to 10% of the annuity value per year.

Surrender charges generally decline as the annuity matures, but it’s important to know how long the surrender period will last and what the surrender charges are before committing to a purchase. If you want to protect yourself against potential charges in the event you need to make an early withdrawal, talk to your agent about additional surrender charge waivers.

If you are interested in a crisis waiver or a way to waive your surrender fees, it is important to ask about your options. According to the Financial Industry Regulatory Authority, waivers to surrender charges are not standard features.

Waiver of Premium

Some annuity contracts offer a waiver of premium. Wisconsin’s government website published a buyer’s guide to annuities that states some insurance companies will pay an annuity owner’s premiums if he or she becomes disabled.

This benefit is typically associated with life insurance policies, so it’s worth reiterating that annuities are not life insurance policies — although these products share some terminology and have similar contract features.

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