What Is an Elimination Period in Insurance?

An elimination period in insurance refers to a specific waiting period that must pass after a covered event occurs but before benefit payments begin. This period functions similarly to a deductible, but instead of a monetary amount, it is measured in time. During this interval, the policyholder is responsible for covering their own expenses.

Understanding the Elimination Period

An elimination period is often called a “waiting period” or “qualifying period.” This period typically begins on the date of the injury, illness, or when the need for care arises, not when the claim is filed. For example, if a policy has a 90-day elimination period, and a qualifying event occurs on May 1st, benefits would only start on day 91, assuming continuous eligibility.

The elimination period benefits both the insurer and the policyholder. For insurers, it helps manage risk by reducing claims for short-term issues that might resolve quickly. It also allows insurers to verify the legitimacy and severity of a claim. For policyholders, choosing a longer elimination period can result in lower premium costs, as it reduces the insurer’s immediate payout risk.

Common Applications in Insurance

Elimination periods are a common feature in specific types of insurance policies, particularly long-term disability and long-term care insurance. In long-term disability insurance, the elimination period is the duration an individual must be continuously disabled and unable to work before receiving benefit payments. For long-term disability, these periods can range from 30 days to as long as two years, with 90 days being a common choice. If a policyholder has short-term disability coverage, it can often bridge the income gap during the long-term disability elimination period.

For long-term care insurance, the elimination period is the number of days a policyholder must receive covered care services before the policy begins to pay benefits. Unlike disability insurance, some long-term care policies may allow the elimination period to be satisfied by non-consecutive days of eligible care. A 90-day elimination period is often chosen in long-term care policies because it aligns with Medicare’s coverage for skilled nursing facility care, which typically covers the first 100 days, minimizing potential out-of-pocket expenses.

Choosing an Elimination Period

Selecting an elimination period involves balancing premium costs with the ability to cover expenses during the waiting time. A direct relationship exists between the length of the elimination period and the premium paid: generally, a longer elimination period leads to lower premiums, while a shorter one results in higher premiums. For instance, increasing the elimination period from 30 days to 90 days can lead to significant premium savings. This trade-off requires careful consideration of personal financial circumstances.

Policyholders should assess their financial readiness, including emergency savings and other available income sources, to determine how long they can sustain themselves without insurance benefits. Having a substantial emergency fund, perhaps six to twelve months of expenses, might allow for choosing a longer elimination period, thereby reducing monthly premium costs. Conversely, individuals with limited savings may prefer a shorter elimination period despite the higher premiums to ensure quicker access to benefits. The optimal choice depends on an individual’s financial situation, risk tolerance, and overall financial plan.