You buy insurance for protection against the unexpected in life. You hope you never have to use the policy you've purchased. But in case you do, you can at least rest assured knowing you're covered. (Assuming you've been paying your premiums.)
Disability insurance is no exception. Although it's easy to brush off the thought of a disability happening to you, the reality is one-in-four working Americans experience an injury or illness that prevents them from earning an income in their working years.
So, if you end up filing a claim on your disability insurance policy, it's important to understand you will probably not receive benefits immediately after a disabling event occurs. That's because most disability insurance policies include an elimination period. Here's everything you need to know about them.
Read on to learn more.
What is the elimination period of an individual disability policy?
A disability elimination period — or waiting period — is best described as the span of time between when a disability occurs and when benefits start paying out. For example, a policy with a 60-day waiting period would not pay benefits for the first 60 days after the insured becomes disabled.
The waiting period for a disability insurance policy is similar to the concept of a deductible on other types of insurance, but there's a key difference. A waiting period requires you to wait a predetermined amount of time to receive benefits, whereas a deductible requires you to pay a certain amount of dollars to receive benefits. It’s designed so that the insurance company does not have to pay 100 percent on a claim; the insured has to pay some of the cost out-of-pocket before benefits kick in.
Elimination period vs. probationary period
A policy’s elimination period is not the same as a probationary period.
A probationary period is a length of time between when the policy is issued and when you can file a claim for benefits. It’s a period of time designed to protect the insurance company from fraudulent claims. Probationary periods may last 15 days or longer.
During the policy’s probationary period, you cannot file a claim with the company, even if your application is approved and your disability is legitimate. Once you’re notified that the probationary period is over, you can file a claim if needed.
With an elimination period, you can file a claim, but you won’t receive benefits until the period has expired.
How the elimination period of disability insurance affects cost
The longer the elimination period on your policy, the less you will pay in premium. With all other policy factors being the same, choosing a one-month elimination period will cost more than three times a policy with a one-year elimination period.
At the same time, there’s very little difference in the premium amount between a 90-day elimination period and a six-month or one-year period. Depending on the policy, you can get a 90-day period for $10 to $20 a month more than what a six-month or one-year period will cost.
For most disability insurance policies, 30-day elimination periods are considerably more expensive than 60-day periods, which cost significantly more than 90-day periods.
That’s because short-term disabilities lasting one to two months are much more common than long-term disabilities. Therefore, a policyholder with a 30-day elimination period has a significantly higher chance of filing a benefits claim than one with a 90-day or more waiting period. To account for the higher risk, the insurer has to charge a higher premium.
The difference in premiums between waiting periods also increases if there are underwriting factors that make the policy more of a risk to an insurer. For example, 30-day elimination periods will be much higher than 90-day periods if the insured is older, works a risky job, or uses nicotine.
Learn More: How Much Does Disability Insurance Cost Per Month?
Examples of disability insurance elimination periods
Based on the Breeze quote engine, here are examples of how different waiting periods for long term disability insurance will affect your premium cost. A 30-year-old male professional employee could get $3,630 in monthly coverage for up to 10 years for:
| Elimination Period | Monthly Premium |
|---|---|
| 30 days | $98/month |
| 60 days | $56/month |
| 90 days | $35/month |
| 180 days | $28/month |
| 365 days | $26/month |
The same policyholder who works a riskier manual labor job could get the same coverage for:
| Elimination Period | Monthly Premium |
|---|---|
| 30 days | $198/month |
| 60 days | $123/month |
| 90 days | $86/month |
| 180 days | $81/month |
| 365 days | $75/month |
The 30-year-old professional who is also a nicotine user would pay:
| Elimination Period | Monthly Premium |
|---|---|
| 30 days | $116/month |
| 60 days | $66/month |
| 90 days | $41/month |
| 180 days | $33/month |
| 365 days | $31/month |
After if instead of being 30-years-old, the applicant is a 50-year-old, the cost would be:
| Elimination Period | Monthly Premium |
|---|---|
| 30 days | $197/month |
| 60 days | $135/month |
| 90 days | $104/month |
| 180 days | $87/month |
| 365 days | $80/month |
Finally, if the 30-year-old professional needs a $5,040 monthly benefit instead of $3,630, the premium would cost:
| Elimination Period | Monthly Premium |
|---|---|
| 30 days | $140/month |
| 60 days | $80/month |
| 90 days | $49/month |
| 180 days | $40/month |
| 365 days | $37/month |
For comparative purposes, below are the rates for a 45-year-old woman with a technical profession applying for a $5,700 monthly benefit:
| Elimination Period | Monthly Premium |
|---|---|
| 30 days | $547/month |
| 60 days | $343/month |
| 90 days | $241/month |
| 180 days | $200/month |
| 365 days | $185/month |
How to choose a disability insurance elimination period
Most disability insurance companies offer five to six options for elimination periods, ranging from 30 days to two years.
While a 30-day elimination period may provide the best coverage, the cost over time may outweigh the potential benefits you would receive.
At the same time, you don’t have to stretch your elimination period to 180 days or even a year to afford coverage.
Once waiting periods reach 90 to 120 days, there are little cost savings to be had by increasing the elimination period. That’s because if your disability lasts that long, it will typically take longer for you to recover. Therefore, there is little additional risk to the insurance company if they have to provide benefits after 90 days as opposed to 120. So the premium costs between these elimination periods will be negligible.
Choosing an elimination period for your policy means assessing:
- Your monthly budget for disability insurance premium.
- How long you can get by without a paycheck before benefits start paying out.
- How much in savings, an emergency fund, investments, and spousal income that you can count on.
- Whether paying a higher disability insurance premium for 10 to 20 years or more is worth the extra two to three months of policy benefits.
Experts say the optimal waiting period is 90 days or 120 days. Choosing anything higher than 120 days means that in exchange for a slightly smaller premium payment, you will be spending your own money for a much longer period if you do become disabled. Plus, by the time you wait through a 180-day, 365-day, or two-year elimination period, you could be nearly bankrupt before your disability insurance policy benefits take effect.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.
