Marla's Lapse: Waiver of Premium, the DI Rider, and Reinstatement

They are different contracts with different clocks and different triggers.

Disability income rider

• Pays a monthly income benefit, not a waiver.
• Trigger: total disability as defined in the rider.
• Clock: 90-day elimination period, then up to 24 months of benefits.
• Requirement: timely written proof of claim and physician certification.

Waiver of premium rider

• Pays nothing to Marla; it keeps the policy in force by excusing premiums during disability.
• Clock: typically a six-month waiting period (separate from and longer than the rider's 90 days). Premiums that came due during that waiting period are normally refunded or credited once the claim is approved.

Why the distinction decides the case: if the waiver is approved, the April 1 premium was waived, not merely late - meaning the policy never lapsed at all, and the reinstatement question disappears. If only the DI rider is approved, the waiver clock may not yet have run, the premium really was unpaid, and the grace period expired. Never let a client assume the insurer "knows" - disability claims are claim-driven, not diagnosis-driven, and a missed proof-of-loss deadline can forfeit benefits.

Reinstatement mechanics

• Written application and evidence of insurability - the hard part, because she now has an MS diagnosis.
• Payment of all overdue premiums with interest.
• Repayment of the $18,000 loan plus accrued interest, or reinstatement of the loan with interest paid current.
• The reinstated policy restarts the contestable period as to statements in the reinstatement application (the suicide clause typically does not restart). New coverage purchased at 48 with MS may also be re-rated.

The stronger argument first: there may be no lapse to cure

1. Prove total disability began in March with contemporaneous medical records.
2. If the waiver claim is approved, premiums falling due during the waiting period are waived/refunded - resolving the April 1 default retroactively.
3. Watch the loan. Six percent interest on $18,000 is running even while premiums are waived. If unpaid interest has been capitalized and the loan plus interest approaches the cash value, the policy can lapse for that reason regardless of the premium waiver - so check the loan-to-value gap before promising her anything.

Order of operations: file the waiver and DI claims with documentation, demand the loan ledger, and only then negotiate reinstatement. Reinstatement with an MS diagnosis may be impossible or costly, which is why the retroactive-waiver argument is worth pressing.

Contract terms control first.

• The rider advances up to $250,000 on proof of terminal illness as the rider defines it - here, certification of 12 months or less. Her physician's certification satisfies it.
• The advance is discounted from the face amount: the insurer pays the accelerated amount less a discount for early payment and less the outstanding $18,000 loan and accrued interest. What remains becomes the death benefit for her beneficiary.
• Some riders limit the acceleration to a percentage of face (often 50%) - the $250,000 figure must be checked against that cap.

Tax treatment

• Accelerated death benefits are excluded from income where the insured is terminally ill - federal law defines that as a physician's certification of an illness expected to cause death within 24 months. Her certification fits comfortably, so the payment is income-tax-free even though the rider uses a stricter 12-month trigger.
• Contrast a chronic illness acceleration, which is taxable above a per-diem limit - a different rider and a different tax answer.

Practical note: the waiver-of-premium and DI claims should still be filed. A terminal certification does not retroactively create disability benefits, and any benefits owed for March through November are still money she is entitled to.