Disability insurance elimination periods

It’s important for any worker to protect their income with long-term disability insurance. But how do you ensure you’re not spending too much money to insure your paycheck?

One of the most common ways is to lengthen the elimination period, or waiting period. The elimination period determines when your disability insurance starts paying out, and the amount of time you choose makes a big difference in how much you’ll pay over the life of your long-term disability insurance.

What is the elimination period of an individual disability insurance policy?

A disability insurance elimination period is how long you have to wait before the insurance company will pay benefits. It might be easiest to think of it as a health insurance deductible. The longer you wait for disability benefits to kick in, the lower your premium.

Elimination periods range from 30 days to two years (typically 30, 60, 90, 180, 365, and 720 days) and the most common period of time is 90 days. Policies get cheaper with longer elimination periods because the number of illnesses and injuries that keep you from working for that long decreases. There is a high frequency of issues for short periods of time, but fewer for long periods. It’s why a short-term disability policy is much more expensive than long-term disability insurance, and why long-term disability insurance is so important: Low frequency, high liability risks are the most important times for insurance.

Once the elimination period is up, assuming the disability meets the definition of disability and isn't caused by a pre-existing condition that has been excluded, your benefits will be paid out.

Keep in mind the elimination period is not the same as a probationary period, a period during which you cannot file a claim. Learn more about the differences between elimination periods and probationary periods.

How elimination periods affect disability insurance premiums

The elimination period is one of the first things to consider if you must lower your premium. The loss of a few months of benefits is inconvenient, but the alternative is sacrificing the benefit amount and coverage for the remainder of your working years.

A longer elimination period means lower premiums. But what exactly does that look like? It helps to see an example.

In this case, we’re taking a look at a sample 30-year-old male software engineer in New York who is getting a $5,000 monthly benefit until age 65 with Guardian.

Long-term disability insurance elimination period cost comparison

For a comparable 50-year-old, the costs are higher but the premium differences between elimination periods are nearly the same:

Long-term disability insurance elimination period cost comparison

What elimination period is right for you?

So what’s the right elimination period length for you? It depends on your financial situation, and how long you can afford to make it.

If you have a short-term disability plan through your employer, you should pick an option that lines up with that benefit period. Your long-term disability insurance should pick up where the short-term insurance leaves off.

If you have liquid savings that can cover six months or longer of no income, a 180-day elimination period can be significantly cheaper than a shorter period. If you don’t have a short-term plan or an emergency fund, it’s important to choose an elimination period in conjunction with a monthly premium you can afford, and start saving right away to cover the gap.

If you have a spouse whose income could support you both when you’re not working, you may be more comfortable elongating the benefit period.

For most people, the sweet spot between cost and coverage will be a 90-day elimination period. If you’re unsure of what will work for you, talk to a licensed expert. They’ll be able to help you figure out your expenses and savings and recommend an elimination period that’s best for your financial situation.

Learn more about how much disability insurance you need.

Three other things to consider when you’re deciding on your elimination period:

• The elimination period doesn’t start on the date you file a claim, but rather the date of the injury or diagnosis and once you’re unable to work because of it. For instance, if you were in a car accident, left unable to work and filed a claim 30 days after the accident, the elimination period would begin the day of the accident.
• Sometimes, your first disability check won’t arrive until 30 days after the elimination period has ended. That means, even if you choose the recommended 90-day elimination period, it might be four months until you receive your first benefit. Keep that in mind when you’re thinking about how long you can live off of your savings and emergency fund.
• Elimination periods can accumulate. If you're out of work for a period of time, try to go back, and realize you can't, the elimination period doesn't start over - it just continues from where you left off.