Long-term disability (LTD) insurance serves as income protection for an unexpected injury or medical condition. Beyond choosing between own-occupation and any-occupation coverage, you’ll need to make many policy decisions, such as choosing an elimination period.
But what is an elimination period for disability insurance? And how does it affect your coverage and premiums?
Disability insurance elimination period: The basics
Your disability policy will include an elimination period that determines the number of days you must be disabled before being eligible for disability benefits. This is also known as the “waiting period” or “qualifying period.”
A disabling injury or illness will trigger the elimination period to begin, allowing you to receive benefit payments after being continuously disabled and unable to work for the established amount of time.
But your elimination period affects more than just the timeline of your disability payout.
The length of your elimination period also impacts how much you pay for disability coverage.
Generally, the shorter your elimination period, the more you’ll pay monthly. But, depending on your financial situation, choosing a longer waiting period might not be as beneficial in the long run.
How long is the elimination period for disability insurance?
Common elimination periods range from a month up to one year. Depending on the insurance carrier, you might have the following options for elimination periods:
- 30 days
- 60 days
- 90 days
- 180 days
- 365 days
You’ll usually see a suggested 90-day elimination period when shopping for long-term disability insurance. This window of time provides a realistic balance between the cost of disability insurance and your level of coverage.
Depending on your risk tolerance and financial situation, you might opt for a shorter length of time. Alternatively, you might feel comfortable choosing a longer waiting period to reduce the cost of your disability insurance.
When does the elimination period start?
Your long-term disability policy’s elimination period won’t come into play until you file a disability claim. However, the elimination period doesn’t start on the day you file a claim. Instead, it’s retroactive to the date of your disabling injury or medical diagnosis that prevents you from working.
Let’s say you’re in a car accident on May 1 that causes long-term damage to your hand. After visiting the doctor and filing your disability claim, your insurance provider approves your claim in June.
You chose to stick with the standard 90-day waiting period. It’ll retroactively begin on May 1 (the date of your injury — not the day you file the claim). You’ll be eligible for benefits on the 91st day following your accident. But you won’t immediately receive your disability benefits.
With LTD insurance, it can take up to 30 days after your elimination period is complete to receive your first disability payment.
So, instead of expecting a payout after three months with a 90-day waiting period, you’re realistically looking at receiving disability income around four months after your disabling event.
This delay in payment is something to consider when choosing your elimination period.
What’s the difference between an elimination period vs. a probationary period?
An elimination period and a probationary period both require the policyholder to wait for coverage to kick in. But they function differently.
A probationary period refers to a set period of time before your coverage begins. Most long-term disability insurance policies don’t have a probationary period. But they’re often found in other types of insurance, such as employer health insurance plans.
How the elimination period affects policy premiums
LTD insurance is a custom insurance product with many policy riders and decisions — each of which can impact your overall costs. Your premium will depend on everything from your age, gender and occupation to your coverage amount, benefit period, and elimination period.
The longer you wait for disability benefits to begin, the lower your premium. A longer elimination period is a lower risk for the insurance company because it provides extra time for you to recover from your injury or illness. This decreases the likelihood that the insurer will need to pay benefits.
This lower risk translates to lower premiums, which can be more enticing. But, by choosing a longer elimination period, you’re also signing up to cover all of your expenses for six months to a year without a primary source of income.
Choosing the right elimination period for you
Most physicians will find that a 90-day elimination period provides a reasonable timeframe for receiving benefits without increasing premiums. However, that might not be the case for you.
When choosing an elimination period for disability insurance, start by:
- Assessing your financial needs. Do you have multiple sources of income, such as rental income or side hustle? Are you married to another high-income earner? You might not need immediate disability benefits if you can rely on other forms of income in the interim.
- Looking at your current disability insurance benefits. Does your employer provide short-term disability insurance? If so, choose an elimination period that aligns with your short-term benefit period. That way, you’ll transition from short-term disability benefits to long-term benefits without a gap in coverage.
- Considering your emergency fund. Do you have sufficient savings to cover several months of lost income and medical bills? If you have at least six months of liquid savings, you might opt for a 180-day elimination period to save on your monthly premiums.
Ultimately, you’ll need to decide how long you can safely afford to live before receiving LTD income.
Keep in mind that your first disability check could take around a month to arrive after your elimination period has ended. So, you’ll need to plan for this delay when assessing your financial situation and choosing an elimination period.
How to survive the elimination period
Elimination periods and insurance premiums have an inverse relationship. So, you’ll need to find the sweet spot between when you’ll receive disability benefits and how much you’re willing to pay each month for coverage.
Ideally, you want an emergency fund that covers at least three to six months’ worth of expenses to maintain your lifestyle during a disability or other crisis. This financial cushion can hold you over until you start receiving disability income.
You might also consider diversifying your income streams now, so you aren’t as reliant on your physician’s income for this reason.
If you want guidance on elimination periods and other policy decisions unique to your situation, fill out the form below for a custom quote for own-occupation disability insurance.