First, the waiting period for a disability insurance policy is a critical one, as it has a lot to do with planning for the future. A very significant component is long-term disability insurance that will assure financial stability in case you become disabled to work due to a disease or injury.
One of the policy provisions in long-term disability insurance policies that is not clear is the waiting period, or elimination period. It is helpful to know this policy provision when faced with the uncomfortable reality of leaving work on disability, with perhaps a gap in your earnings.
The waiting period of a disability insurance policy is also known as the elimination period. It is the time gap between the date of commencement of disability and the date on which the insurer starts paying the benefits. It may continue for a few days to many months, depending upon the policy.
A disability insurance elimination period is the time you have to wait before the insurer will pay benefits. Also referred to as waiting periods, elimination periods vary considerably but typically range from 30 days to two years. They start from the injury date or diagnosis date, not the date of claim filing.
What is a Waiting Period?
The waiting period, as it is referred to in disability insurance policies as the elimination period, is the amount of time you must be disabled before you begin receiving benefits from your long-term disability insurance policy. Waiting periods typically range from 30 to 180 days but can be as much as a year in some policies.
If you carry employer-sponsored disability insurance coverage, your short-term disability insurance coverage is more than likely the elimination period, which is the same amount of time that you qualify to receive short-term disability.
For example, your short-term disability has a max benefit period of 180 days. If you are approved under the terms of your STD policy, you collect STD benefits for 180 days.
It is likely, then, that your long-term disability insurance policy has an elimination period (waiting period) of 180 days. This would put you on being paid your LTD benefits starting on the 181st day.
How Do These Elimination Periods Work?
The majority of policies require a policyholder to qualify during the elimination period prior to paying benefits. That is to say, the policies require the party seeking payments to be injured, ill, or disabled during this time.
During the elimination period, the policyholder finances any care that he requires. The provision is customary in policies like long-term care insurance and disability insurance. In some insurance policies, the elimination period is the deductible.
So, instead of paying a sum of money for required care, the policyholder is charged for a number of days during which he funds his own care. Elimination periods range from 30 to 365 days, depending on the policy.
Insurance premiums and elimination periods are inversely related. The shorter the elimination period, the higher the premium will cost; the longer the elimination period, the lower the premium will cost.
In choosing what elimination period to buy, the policyholder ought to consider his financial ability to finance care costs.
Why a waiting period at such critical times? The elimination period serves numerous purposes. Most importantly, it makes premiums cheaper for all policyholders.
As the insurance company will not be paying immediately, it thus eradicates the risk and administrative cost of short-term disabilities that resolve in no time. It distinguishes this insurance from health insurance, which normally has immediate medical costs.
Effect on Your Financial Planning
You should comprehend the elimination period in your long-term disability insurance policy for effective financial planning. The following are ways to prepare you:
1. Build an Emergency Fund
Aim to save enough to cover at least three to six months of living expenses. This will provide a buffer during the waiting period.
2. Review Your Policy Annually
Life circumstances change, and so should your insurance coverage. Regularly reviewing your policy ensures it still meets your needs and that the waiting period is appropriate.
3. Consider Supplemental Coverage
You might want to buy supplemental short-term disability insurance to cover the gap if your long-term disability insurance policy has a long waiting period.
Conclusion
You cannot avoid the waiting period in your long-term disability insurance policy. Every group disability insurance policy has a waiting period. Most individual disability insurance policies also have a waiting period.
By understanding what it is and what it signifies, and by putting it into perspective with your financial situation and planning, you can be effectively protected against the financial impact of a disability and inability to work.
Being proactive regarding managing this waiting period will maintain your financial stability and provide peace of mind in the face of unexpected hardship.
