Choosing the right disability insurance is a big decision, and one of the most important factors is the elimination period.
Understanding the different elimination periods and how they affect your premiums and benefits is important.
Here’s everything you need to know.
What Is a Disability Insurance Elimination Period?
An elimination period is the time you must wait after experiencing a qualifying disability occurrence to receive payment.
For example, if you became disabled today and had a 90-day elimination period, you would not receive your disability payments for 90 days, even if the claim is approved.
What Is the Purpose of an Elimination Period?
The elimination period is the equivalent of the deductible on a health insurance policy.
No insurance company wants 100% responsibility for a loss, but with disability claims, there isn’t a deductible. Instead, they don’t pay anything for a few months on your claim, depending on the period you choose.
During this time, you’re responsible for covering the cost of living and making the payments on your bills.
Do Elimination Periods Affect Insurance Premiums?
Elimination periods have a direct impact on insurance premiums. The longer the elimination period is, the lower your premiums.
However, this doesn’t mean you should automatically take the longest elimination period.
Before choosing the right period, decide how long you can afford to be without a payout if disabled. Choosing an elimination period that’s too long could cause more financial issues than a higher premium.
Instead, find the right balance so you have your bases covered.
Typical Disability Insurance Elimination Periods
The typical elimination period is 14 to 180 days, but you can get an elimination period of 30 to 365 days, depending on the type of policy.
But, again, it depends on what you can afford. The more money you have in savings, or the better the group disability insurance policy offered by your employer, the longer the elimination period you can take on an individual policy, keeping your premiums down.
Short-Term Disability Elimination Period
Short-term disability is insurance that protects your income for up to one year. Most policies have an elimination period of 14 days but can range from 7 to 30 days. Employees can often use their vacation or sick days to cover the time between them if they don’t have enough money saved.
Long-Term Disability Elimination Period
Long-term disability insurance elimination periods are more common and usually longer because long-term disability premiums are higher.
When choosing your long-term disability elimination period, consider the other disability policies you have, plus the money you have set aside to handle your costs before disability insurance payouts begin.
Elimination Period vs. Probationary Period
Many people confuse the elimination period and probationary period, and not all disability policies have a probationary period, as they are more common in health insurance policies.
However, some do, so it’s essential to understand what they are and how they work.
Like an elimination period, a probationary period means there’s no payout. However, unlike an elimination period, you cannot even file a claim during the probationary period. Fortunately, they are usually short, such as 15 to 30 days after you buy the policy.
The point of the probationary period is to prevent fraudulent claims or from anyone making a claim on a pre-existing condition that occurred before they bought the disability policy.
Who Pays for a Claim During the Probationary Period?
You are responsible for 100% of the costs you incur during a claim’s probationary period, much like an elimination period.
However, unlike the elimination period, you can’t file a claim for the disability that occurred during that time.
How to Choose the Right Elimination Period
Choosing the right elimination period is one of the most critical factors in your disability policy.
Compare it to selecting a deductible on your auto insurance policy. If you choose a high deductible that you can’t afford, you defeat the purpose of taking the higher deductible.
The same is true of the elimination period, so here are some factors to consider when choosing the right period:
- How many months of expenses do you have saved should you become disabled?
- What other policies, such as group or short-term disability policies, do you have?
Considering these factors, you can decide which elimination period makes the most sense. Don’t focus only on the amount you’ll save on the premiums. Instead, look at the big picture and what it would cost you, in the long run, should you become disabled.
Example of an Elimination Period
Let’s look at a quick example of an elimination period.
John has the option of a 30-day or 90-day elimination period. He just started his career in the medical field and has yet to have much chance to save money, given his high medical school debts and the cost of living.
If John takes the 30-day elimination period, his premiums will be $60 or so higher per month than if he chose the 90-day elimination period. $60 a month is $720 per year and a mere fraction of John’s monthly cost of living.
If John took the 90-day elimination period, he’d be without income for three months. The $720 savings in premiums would get eaten up quickly, and he’d likely face financial strain.
Choosing the right elimination period is a big decision. Looking at all your options and the resources at your disposal is essential.
Is Elimination and Waiting Period the Same Thing?
Yes, the elimination and waiting periods are the same thing. They signify the time you must spend without payment, even if you have an approved claim.
What Is the Best Elimination Period for Disability Insurance?
The best elimination period for disability insurance is the one you can afford. For example, if you have a lot of money saved, you may take a longer elimination period and save on your disability insurance premiums.
However, if you don’t have money saved or need the reassurance of coverage, a shorter elimination period may be better.
What Does a 90-Day Elimination Period Mean?
A 90-day elimination period means you are without benefits for 90 days. You can file a claim and get the ‘clock ticking,’ but you won’t receive any money until the 91st day on an approved claim.
Disability Insurance Elimination Period
Pay close attention to your disability insurance elimination period. It’s one of the most critical factors of your policy as it determines when you’ll receive a payout if you become disabled.
Discuss your options with your insurance agent and look at all sides to ensure you understand the potential outcomes.