When will your long-term disability insurance pay out if you become disabled? When you are out of work or experiencing a loss of income, this is the most important thing to you and your family.
The elimination period, or waiting period, is what determines when you receive your benefit. But elimination periods are often confused with probationary periods. Probationary periods are a period of time after purchasing a policy that you are unable to file a claim.
The difference between a long-term disability insurance elimination period & probationary period
Your health insurance has a deductible, which you need to pay before your coverage kicks in. For long-term disability insurance, the elimination period is like a time-based deductible: It’s the waiting period before benefits begin, starting the day you become ill or injured.
The typical elimination period is 90 days. You can alter the cost of your policy by changing its elimination period. Longer elimination periods provide cheaper premiums; policies with shorter elimination periods have higher premiums.
You might want a 30-day elimination period, but if a 90-day period makes the policy affordable, you’re sacrificing only a few months for having protection the rest of your working years. People cover the elimination period with their short-term disability plans through work or liquid savings.
Some people confuse elimination periods and probationary periods, but here’s the thing: Most long-term disability insurance policies do not have probationary periods. They're found on other types of insurance. For example, a probationary period in health insurance is the time before coverage takes effect, usually in a employer group plan. But when it comes to long-term disability insurance, you’re covered as soon as you purchase your policy and could file a claim the next day if needed.
3 things to know about the elimination period
So long-term disability insurance policies don’t have a probationary period. You only need to be concerned with the elimination period. Outside of how the elimination period affects your policy cost and when you receive your benefit, there are three things you should know.
1) Pre-existing conditions matter
A built-in pre-existing condition exclusion is found on disability policies. When you purchase a policy, it goes through underwriting, at which point the carrier will cover anything that prevents you from working unless they specifically exclude it.
They also include a general pre-existing exclusion for two years for any pre-existing condition that was not disclosed. That's the only protection they have from someone who knows they can't work, buys a policy, lies during underwriting and files a claim the first day. It keeps disability insurance affordable for the insurer and the policyholders.
2) The accumulation period
The elimination period doesn’t have to be consecutive days. Each policy has an accumulation period, usually a year, that can satisfy the elimination period. For example, if you have a 90-day elimination period and miss work for 30 days, try to go back, then it's determined you can’t work, the elimination period would effectively be 60 more days since you already had 30 within the last year.
3) Recurring disabilities & elimination periods
Most carriers waive the elimination period if you file a second claim on the same condition where you previously satisfied the elimination period. For instance, if you are diagnosed with cancer, are out of work and on disability for a year, recover, go back to work, but the cancer returns, you won’t need to wait out another elimination period. You’re immediately eligible for the disability benefit. However, if you suffer from a different disability, you’ll need to wait out the elimination period again.
What you should actually worry about with your long-term disability insurance
You don’t need to worry about a probationary period with your disability insurance, but that doesn’t mean there aren’t other things to consider. Besides the elimination period, here’s what you should focus on.
- What’s the definition of disability? A disability is what defines whether you are eligible for a claim. It largely has to do with the type of occupation status your policy has. A true own-occupation policy means that you’ll receive the disability benefit if you can’t work your own job, even if you’re able to do other work. You can find more information on occupation disability insurance here.
- What’s the benefit period? Benefit periods — that is, how long you receive the benefit — can range from two years all the way until your retirement.
- What’s the benefit amount? This is how much money you’ll get each month from the insurer. The typical benefit amount is 60% of your take-home pay.
These items affect the cost of your policy. If you have a strict definition of insurance with a long benefit period and high benefit amount, that will raise the price. Together with the elimination policy, these factors determine how much your long-term disability policy costs.
In the end, there are more important things to worry about when it comes to long-term disability insurance than the probationary period. The elimination period is the real key to determining when your benefits start, and it should be part of your search when protecting your income — and your family.