If you own a disability insurance policy, then it’s important for you to know how long the elimination period is. Most disability insurance policies don’t start paying out benefits right away; the elimination period must elapse before you can receive benefit payments.
What Is An Elimination Period?
The waiting period before payments can begin from a disability insurance policy is known as the elimination period. Once the elimination period has elapsed, then you will begin receiving benefits, assuming that you meet the policy’s definition of partial or total disability.
Different policies will have different elimination periods. For example, a short-term disability policy will have a shorter elimination period of anywhere from 0 to 90 days, while a long-term disability insurance policy may not start paying out until two years after you become disabled.
A 90 day elimination period is the most common. The elimination period essentially functions as the deductible for this type of insurance. The longer the period, the lower the cost of the insurance premiums and vice-versa. Another stipulation is that you have to be disabled for every day during the entire elimination period in order to receive the benefit amount.
The Preexisting Condition Exclusion
Most disability insurance policies require medical underwriting, and most carriers have a two-year exclusion during which they will not pay benefits if the insured has a preexisting condition that they did not disclose on their policy application.
This effectively protects them from unscrupulous customers who are unable to work due to a preexisting condition, but lie about it on their policy and then try to file a claim immediately. This keeps disability insurance affordable for the rest of us.
It is also impossible to buy a short-term disability insurance policy with no waiting period if you have any type of known or preexisting condition. Most short-term policies have a one-year elimination period if you have any type of preexisting condition.
Short vs. Long-Term Disability Elimination Periods
As mentioned previously, the elimination period for a short-term disability policy can be as short as two weeks or as long as 90 days. The policy will begin paying out benefits once that period of time has elapsed, and may continue to pay benefits for up to two years.
Most long-term disability insurance policies have up to a two-year waiting period before they will start paying benefits, but their benefit periods are much longer than with short-term policies, usually lasting for three, five or ten years or even until retirement.
The Accumulation Period
When it comes to satisfying the elimination period in a disability insurance policy, the amount of time that you have to wait before the policy will start paying benefits are generally treated cumulatively.
- For example, if the elimination period in your policy is 90 days and you become disabled for 60 days and then go back to work, then you would only have to wait for another 30 days if you were to become disabled with the same affliction.
The elimination period does not have to be all one block of time. Most disability insurance companies offer an accumulation period of seven months for a three month elimination period (twice the elimination period plus one month).
Elimination Periods for Recurring Disabilities
Most disability carriers will not require you to satisfy a second elimination period if you file another disability claim for the same affliction that you filed a claim for before.
- For example, if you are diagnosed with cancer and satisfy the elimination period of one year before receiving benefits for two years, then recover and go back to work, then you won’t have to wait another year before receiving benefits if your cancer returns and you need further assistance.
Elimination vs. Probationary Periods
The elimination period in a disability insurance policy should not be confused with the probationary period. Probationary periods usually only apply to group health insurance plans, where the employee has to work for the employer for a certain period of time before getting coverage.
There are virtually no probationary periods found in any type of individual disability insurance policy. Once you start paying the premiums in a disability insurance policy, then you can file a claim immediately and receive disability benefits if you qualify.
However, some employers who offer group or association disability coverage may require you to satisfy a waiting period before they will extend you this coverage. The probationary period for this will vary from one employer to another, so be sure to find out when you’ll become eligible for coverage from your human resources department.
If it’s at all possible, you should have an emergency fund with enough in it to pay for all of your monthly expenses for at least as long as the waiting period in your disability insurance policy. This can eliminate the need for short-term disability insurance, which typically only pays out for up to two years at most.
This type of coverage is generally only affordable when it’s provided as part of a group plan, but it usually isn’t cost-effective as a standalone policy. Short-term disability insurance is much more expensive than long-term disability insurance because the incidence of claims for short periods of time, such as 30 to 60 days is much higher than for long-term claims.
The average long-term disability claim lasts for about 35 months, but happens far less often than short-term claims. So if you can have an emergency fund that covers the elimination period for your long-term disability insurance, then you can save yourself a major expense.
The waiting period is a vital component of your disability insurance policy. The longer the waiting period, the less expensive your policy premiums will be, and the shorter it is, the higher your premiums will be.
Consult your financial advisor or life insurance broker for more information on waiting periods and how they can affect you.