Key Takeaways
- Elimination periods are the wait time before insurance benefits begin after an illness or injury.
- The most common elimination period is 90 days, balancing cost and risk.
- Shorter elimination periods typically result in higher insurance premiums.
- Long-term care insurance requires consecutive days of care during the elimination period.
- Financial readiness affects the ideal elimination period choice for each individual.
What Is an Elimination Period?
An elimination period is the waiting time between the start of an injury or illness and when an insurance policy begins paying benefits, most commonly in long-term care and disability insurance. During this period, the policyholder covers costs out of pocket, and choosing a longer elimination period can lower premiums while requiring more short-term financial planning, similar in effect to a deductible.
How Elimination Periods Work in Insurance Policies
The most common elimination period is 90-days, but they may be anywhere from 30 to 365 days. In general, the shorter the elimination period, the more expensive the policy (and vice versa). Typically, most insurance policies have the best premium rates for 90-day elimination periods.
A policy with anything longer than 90 days, while less expensive, may not save you much when compared to the extra risk you’ll take on. While you may be saving money by paying a lower premium, you could find yourself in a tricky financial situation if you need coverage.
The elimination period starts on the date that your injury or diagnosis renders you unable to work. For instance, if you were in a car accident that left you unable to work, and you filed a claim 30 days after the accident, the elimination period would begin the day of the accident. It’s also possible that your first disability check won’t arrive until 30 days after the elimination period ends, meaning if you choose a 90-day elimination period, it might be four months before you receive your first benefit.
Important Factors to Consider With Elimination Periods
Navigating Elimination Periods in Long-Term Care Insurance
Before buying LTC insurance, make sure you know the terms of the elimination period. Most policies require policyholders to need consecutive days of services or disability.
For example, if your elimination period was 90 days, you would need to be in a hospital or disabled for 90 consecutive days before any coverage begins. Accumulating 90 days in total over a specified period of time (such as six months) would not qualify you for coverage.
Selecting the Right Elimination Period for Your Needs
The right elimination period for you depends on your financial situation and how long you can afford to live without benefit payments.
With a short-term disability plan through your employer, for instance, the priority should be to pick a plan that aligns with the benefit period of that short-term disability plan. Long-term disability insurance should pick up where the short-term insurance plan leaves off.
Some plans may waive the waiting period when you submit a second claim. So, if you have a chronic illness that prevented you from working for over 90 days, and you recovered within a year, but the illness came back, you may not have to meet the elimination period again. However, if your disability is caused by a different illness, you will need to meet the waiting period again.
If you have enough savings to cover six months or longer without any income, you might consider a 180-day elimination period. It can be significantly cheaper than a shorter elimination period. If you don’t have a short-term plan or an emergency fund, you should choose an elimination period with a monthly premium you can afford. Then, start saving as much as you can, so you can have that emergency fund to cover the gap.
If you are married and your spouse is working, a longer elimination period might work for you.
The Bottom Line
An elimination period is the waiting time before benefits start, and longer periods usually mean lower premiums. A common choice is 90 days, but a longer period may fit if you have a working spouse or enough savings to cover costs in the meantime.
