Before your long-term care insurance or disability insurance coverage kicks in, you may be disabled or hospitalized for a length of time. This period is known as the elimination period. Read on discover how an elimination period can impact your insurance premium and what you need to know before selecting a policy.
Elimination Period Defined
An elimination period is the amount of time an insurance policyholder must wait between when an illness or disability begins and when they can begin receiving their benefits. An elimination period is also referred to as the waiting or qualifying period. During this time, the policyholder must pay for all services rendered.
Typically, the longer the elimination period a policy has, the more affordable the policy will be. Most of the insurance policies that have the best premiums have a 90-day elimination period. If you choose to select a longer elimination period, you may find a better premium rate. However, even though you are saving money, it may not make sense because you’re taking on more risk. This is because you may not have coverage for a certain amount of time.
A policyholder’s elimination period begins the date of their diagnosis or when they incurred an injury. For example, let’s say you were cleaning your gutters and fell off a ladder. The fall led to some serious injuries that now prevent you from working your construction job. Even if you filed a claim 30 days after the incident, the elimination period would begin the day the incident occurred. Keep in mind, it’s possible that your insurance check may not arrive until 30 days after your elimination period ends. So, if you have a standard 90-day elimination period, it could take up to four months to receive your insurance benefits.
Disability Insurance Elimination Period
There are some other important factors you need to consider when selecting the right disability insurance policy and waiting period. First, most disability insurance policies have built-in pre-existing condition exclusions. This means you must divulge all your pre-existing conditions.
If you don’t specify your current pre-existing conditions, the policy may not cover your disability period. Insurers may include a general pre-existing exclusion for two years. Therefore, if you didn’t mention a chronic illness, your insurance may not cover your disability. Insurers include this provision to protect themselves from policyholders that buy a policy knowing they can’t work.
Another consideration is the accumulation period. Some policies have a year accumulation period, which may satisfy the elimination period. For example, if you didn’t work for 60 days, then went back to work but couldn’t work for another 30 within a year, this may help you meet the elimination period.
Lastly, some plans waive the waiting period when you submit a second claim. So, if you had a chronic illness that kept you out of work for over 90 days then you recovered within a year, but the illness came back, you may not have to meet the elimination period again. But if you suffer from a different illness you will need to meet the waiting period again. All of these factors are important when considering the right policy for your needs.
Long Term Care Elimination Period
When selecting a long-term care insurance policy, it’s important to understand how a long term care elimination period works. Most policies require policyholders to need consecutive days of services or disability. This means that if a policy has a 90-day long term care elimination period, the policyholders must need 90 days of care before the benefits begin.
If you don’t have consecutive care needs, you may not meet the long term care elimination period. So, if you needed 90 days of care within a nine-month period, you still may not qualify for benefits. That’s why it’s important to understand what you’re responsible for before purchasing a long-term care policy.
Picking the Right Elimination Period
Everyone has a different financial situation. Therefore, everyone may need a different elimination period for their insurance policy. For example, if your employer offers a short-term disability plan, the elimination period should coincide with a short-term disability plan. Additionally, your long-term disability insurance should pick up where your short-term disability insurance trails off.
For those who have an emergency fund of six to 12 months of their expenses set aside, they could consider an insurance policy with a longer elimination period. If you have enough money to pay for your disability expenses or long-term care needs, you may be able to save money on your insurance premium. You could consider a 180-day elimination period, which would provide a smaller premium amount.
On the other hand, if you don’t have a large emergency fund, select an insurance policy you can afford. Even if it has a longer waiting period, you can start saving money to afford any additional costs you may incur. This way you won’t have to stress about making your monthly insurance premium payments.
The Bottom Line
Selecting an insurance policy with a long elimination period may save you money on your premium but it may put you in a sticky financial situation if you need coverage. Before you select a disability or long-term care policy, make sure you understand how the elimination period works and if you have enough in savings to pay for out-of-pocket expenses. This will help ensure you select the policy that best suits your financial situation.
- If you need extra help weighing your insurance options, you might want to consider working with an expert. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
- Consider all the insurance options available based on your individual circumstances. This can help you save money. A comprehensive budget calculator can help you understand which option is best.
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