What Is an Elimination Period and How Does It Work?

Defining the Elimination Period

An elimination period in insurance is a waiting time that must pass from a qualifying event before policy benefits become payable. This period, specified in the insurance contract, requires the insured to cover their own costs for a disability or long-term care need. For example, if a policy has a 90-day elimination period, benefits begin only after 90 days have elapsed since the qualifying event.

This waiting period serves a dual purpose for both the insurer and policyholder. For insurers, it manages risk by reducing small claims, lowering administrative costs, and keeping premiums affordable. For policyholders, it acts like a deductible, requiring them to bear the initial financial burden. During this time, the insured must rely on personal savings or other resources.

How Elimination Periods Operate

An elimination period begins when a policyholder experiences a qualifying event, such as becoming disabled or requiring long-term care. The “clock” typically starts on the first day the insured meets the policy’s definition of disability or requires qualifying long-term care, not when the claim is submitted. For long-term care, this often means needing assistance with Activities of Daily Living (ADLs) or experiencing cognitive impairment. For disability insurance, it refers to the inability to perform the duties of one’s occupation, as defined by the policy.

To satisfy the elimination period, the policyholder must continue to meet the policy’s criteria for the entire waiting period. For instance, a long-term care policy with a 60-day elimination period requires the insured to need qualified care for 60 consecutive days before benefits begin. Similarly, a disability policy with a 90-day elimination period requires the insured to remain disabled for 90 days. Once satisfied, benefits accrue from the day immediately following the end of this period.

Benefits do not retroactively apply to the start date of the qualifying event, nor do they begin on the day the claim is filed. The insurance company starts paying benefits only after the entire elimination period has concluded. This structure ensures the policyholder manages initial costs, aligning with the “deductible” function of the elimination period.

Factors Affecting Elimination Periods

The length of an elimination period is a significant factor in determining an insurance policy’s cost and is chosen by the policyholder when coverage is purchased. Common elimination periods range from 30, 60, 90, or 180 days, though some policies offer longer options, such as 365 days. The chosen duration directly impacts the premium amount.

Selecting a longer elimination period, such as 180 or 365 days, generally results in lower policy premiums. This is because the policyholder assumes greater initial financial risk by covering their own expenses for an extended duration before insurer benefits commence. Conversely, a shorter elimination period, such as 30 or 60 days, typically leads to higher premiums, as the insurance company begins paying benefits sooner.

An individual’s financial situation and ability to cover initial costs significantly influence the choice of an elimination period. Those with substantial savings, emergency funds, or other insurance that could cover short-term care or income loss may choose a longer elimination period for lower premiums. Conversely, individuals with limited liquid assets may prefer a shorter elimination period to minimize out-of-pocket expenses during a qualifying event.