Elimination Period for Disability Insurance

What Is the Elimination Period of an Individual Disability Policy?

The elimination period of an individual disability policy refers to how long a policyholder must wait after initially being unable to work, due to disability, before they can start receiving disability benefits. The elimination period begins when the illness or injury occurs and ends after a certain number of days determined when you purchase a policy.

Disability insurance replaces lost income when you become sick or injured and can no longer work. There are two types of disability insurance: short-term and long-term. Short-term disability insurance covers conditions that are likely to resolve in a few weeks or months, while long-term disability insurance can provide coverage for multiple years.

Because the benefits last for a shorter time, the elimination period of a short-term policy is also shorter. You won’t have to wait as long to receive benefits. A typical elimination period for a short-term policy might be as little as a week or up to a month.

If you have a long-term disability policy, you may have to wait multiple months after you stop working due to a disability before you can receive benefits. For long-term disability policies, the elimination period can be between 30 and 365 days.

In addition to the monthly benefit amount and the benefit payment period, determining an appropriate elimination period is an essential part of getting the right disability insurance policy.

Daniel J. Adams, MBA, CFP®, CLU®Founder and President of CEG Life Insurance Services

As the founder of CEG Life Insurance Services, Daniel J. Adams has extensive experience with life and health insurance products. Daniel assists clients in building a secure financial future as a Certified Financial Planner™ professional and independent insurance agent. He also trains new agents and advises other financial professionals.

How the Elimination Period Impacts Your Premium

When you purchase a disability insurance policy, you’ll be able to choose the elimination period, which will affect how much you pay in premiums. Generally, a shorter elimination period will result in a higher premium, while a longer elimination period will lower the premium cost.

“The elimination period and disability insurance premiums are inversely proportional to each other. Long elimination periods mean lower premiums. This signifies that there is less likelihood that you will need to claim benefits, and hence the company’s exposure to risk is lower,” said Rhett Stubbendeck, Chartered Property and Casualty Underwriter (CPCU) and CEO of LeverageRx, Inc.

This means that if you need disability insurance but may not be able to afford expensive premiums, one option is to choose a policy with a longer elimination period. Keep in mind that this exposes you to losing income for a longer time before your benefits kick in, so consider how well you’ll weather the loss in income for an extended period.

If you have a robust emergency fund, a longer elimination period can be worthwhile. For example, if you have six months of income saved (as many financial experts recommend) you can opt for a long-term disability policy with a 180-day elimination period. You’ll likely pay a lower premium for your coverage, and you will know that you’ll have enough savings to fall back on while you wait for benefits to kick in.

However, a long elimination period may not be worth it for many people. If your finances can’t endure the hardship of waiting 90 or 180 days without income, there’s little point in signing up for a policy with such a long waiting period.

The elimination period and disability insurance premiums are inversely proportional to each other. Long elimination periods mean lower premiums. This signifies that there is less likelihood that you will need to claim benefits, and hence the company’s exposure to risk is lower.

Rhett StubbendeckCPCU and CEO of LeverageRx, Inc.

How To Choose a Disability Insurance Elimination Period

When choosing disability insurance, especially long-term coverage, the elimination period is a key component of the policy to consider. To decide which elimination period is best for you, consider factors like your monthly income and budget, your savings and whether others in your household are dependent on your income.

“It is important to weigh the cost of a longer elimination period against the risk of not having benefits available right away in case you become ill or injured. Consider what type of financial situation you would be in if you had to wait several months before receiving benefits and decide whether it makes sense to pay more in premiums to have a shorter waiting period,” said Linda Chavez, Founder and CEO of Seniors Life Insurance Finder.

Most Common Elimination Periods

30 Days

Thirty days is the shortest elimination period you’re likely to find for a long-term disability insurance policy, but also probably the most expensive. This elimination period might be best for someone who doesn’t have much savings, or for small-business owners with employees who rely on their income.

60 Days

A 60-day elimination period is less common than 30 or 90 days. But it can provide a happy medium between the cheaper but less convenient 90-day period and the more expensive but faster 30-day period.

90 Days

Ninety days is the most common elimination period for long-term disability insurance. Policies with this period are likely to be pretty affordable.

180 Days

A six-month elimination period could be a good option for those who want to reduce their premiums but can’t afford to be out of income for more than half the year.

365 Days

A year-long elimination period will lower your premiums considerably, but be sure you can afford to go without income for that long should you need to file a claim.

720 Days

You’ll likely find policies with 720-day elimination periods to have the lowest premiums, but an elimination period this long won’t make sense for many people.

Be sure to understand your financial situation when choosing an elimination period.

“It is important to weigh the cost of a longer elimination period against the risk of not having benefits available right away in case you become ill or injured. Consider what type of financial situation you would be in if you had to wait several months before receiving benefits and decide whether it makes sense to pay more in premiums to have a shorter waiting period.”

Linda ChavezFounder and CEO of Seniors Life Insurance Finder

Elimination Period vs. Probationary Period

The elimination period is different from the probationary period, which is how long you must wait after purchasing an insurance policy before you can file a claim for the insurance benefits.

Disability insurance companies include a probationary period on policies to help prevent adverse selection, or taking on risks that are less favorable to the insurance company. In this case, that can mean a person taking out a disability insurance policy if they believe they are getting sick but before they get an official diagnosis, then immediately filing a claim and starting the benefits process.

Probationary periods tend to be shorter than elimination periods, usually between two weeks and a month. Not all disability insurers require a probationary period, and for some policies, the probationary period only applies to claims related to illness. In the event of an unexpected injury, you may still be able to file a claim not long after purchasing your policy.