Waiting Period – Insurance is a contract that protects the insured from financial losses due to uncertain events. However, insurance coverage and benefits are not always available immediately or fully to the insured. There may be certain periods of time during which the insured has to wait before they can access their insurance policy or claim their benefits. These periods of time are known as waiting periods in insurance.
In this article, we will explain what waiting periods are, why they exist, how they work, and what they mean for the insured. We will also provide some examples of waiting periods in different types of insurance policies.
READ ALSO
- Insurance Rate Comparison by State – How to calculate insurance rate?
- Insurance totaling out a Car – What is the difference between total loss and constructive total loss?
- AT&T Business Phones Service – What are the business units of AT&T?
- Erie Car Insurance in Maryland – What kind of car insurance do you need in Maryland?
- VA Home Loan Administration – What does it mean to have a VA home loan?
What is a Waiting Period In Insurance?
A waiting period is the amount of time an insured must wait before some or all of their coverage comes into effect. The insured may not receive benefits for claims filed during the waiting period. Waiting periods may also be known as elimination periods or qualifying periods.
Waiting periods are often used by insurance companies to reduce the risk of adverse selection, moral hazard, and high administrative costs. Adverse selection occurs when people who are more likely to make claims buy insurance, while moral hazard occurs when people who have insurance behave more recklessly or fraudulently. High administrative costs result from processing a large number of small or frequent claims.
Waiting periods can vary depending on the type of insurance, the insurer, the policy, and the individual circumstances of the insured. For example, some health insurance plans may have different waiting periods for different types of services, such as maternity care, dental care, or pre-existing conditions. Some life insurance policies may have a waiting period before paying out the full death benefit, while some disability insurance policies may have a waiting period before paying out the monthly income replacement.
Types of Waiting Periods
There are several types of waiting periods that can apply to different kinds of insurance policies. Some of the most common ones are:
Initial Waiting Period
This is the time that an insured has to wait from the date of issue or enrollment to start using their insurance policy and benefiting from it. This is also known as the cooling period in health insurance. The standard in the industry for initial waiting periods is up to 30 days with most health insurance policies. However, some policies may have longer or shorter initial waiting periods depending on the type and level of coverage.
Employer Waiting Period
This is the time that an employee has to wait before they can receive company-subsidized health services. This is often used by employers who expect a high turnover rate in employees or who want to discourage employees from filing major claims and leaving shortly thereafter. The employer waiting period can vary from one to six months or more depending on the employer’s discretion and the state’s regulations.
Affiliation Waiting Period
This is the time that an insured has to wait before they can join a health maintenance organization (HMO) or a preferred provider organization (PPO). The Health Insurance Portability and Accountability Act (HIPAA) regulates affiliation waiting periods and does not allow them to exceed two months (three months for late enrollees). Affiliation waiting periods are usually waived if the insured has continuous coverage from another source.
Pre-existing Condition Exclusion Period
This is the time that an insured has to wait before they can receive coverage for a specific health condition that they had in the six months before enrolling in a health insurance plan. Coverage may be limited or excluded for pre-existing conditions during this period. However, if the insured can prove uninterrupted insurance coverage prior to changing policies, that coverage can count towards the pre-existing condition exclusion period. The maximum pre-existing condition exclusion period allowed by HIPAA is 12 months (18 months for late enrollees). However, under the Affordable Care Act (ACA), most health plans are prohibited from imposing pre-existing condition exclusions since 2014.
Benefit Waiting Period
This is the time that an insured has to wait before they can receive benefits from their insurance policy after filing a claim. This is also known as an elimination period or a deductible period in some cases. Benefit waiting periods can apply to various types of insurance policies, such as life insurance, disability insurance, long-term care insurance, and critical illness insurance. Benefit waiting periods can range from a few days to several months or years depending on the type and amount of benefits.
Examples of Waiting Periods
Here are some examples of how waiting periods can work in different scenarios:
- Alice buys a health insurance policy with a 30-day initial waiting period and a four-year pre-existing condition exclusion period. She has diabetes and high blood pressure, which she was diagnosed with three years ago. She cannot claim any benefits for her diabetes and high blood pressure until four years have passed since she enrolled in her policy. She can claim benefits for other covered services after 30 days have passed since she enrolled in her policy.
- Bob enrolls in his employer’s group health plan with a three-month employer waiting period and no pre-existing condition exclusion period. He has asthma, which he was diagnosed with five years ago. He cannot claim any benefits for his asthma or any other covered services until three months have passed since he enrolled in his plan. After that, he can claim benefits for all covered services without any restrictions.
- Carol buys a life insurance policy with a two-year benefit waiting period and no initial waiting period. She dies of natural causes after one year of buying her policy. Her beneficiaries cannot receive the full death benefit until two years have passed since she bought her policy. They can only receive a partial or refundable benefit depending on the terms of their policy.
- David buys a disability insurance policy with a 90-day benefit waiting period and no initial waiting period. He suffers a back injury that prevents him from working after six months of buying his policy. He cannot receive any monthly income replacement until 90 days have passed since he became disabled. He can receive benefits for up to the maximum benefit period specified in his policy after that.
In conclusion, Waiting periods are common features of many insurance policies that affect when and how the insured can receive coverage and benefits. Waiting periods can vary depending on the type of insurance, the insurer, the policy, and the individual circumstances of the insured. Waiting periods can serve different purposes, such as reducing the risk of adverse selection, moral hazard, and high administrative costs, or encouraging continuous and preventive care. Waiting periods can also have different implications for the insured, such as affecting their affordability, accessibility, and quality of care. Therefore, it is important for the insured to understand the waiting periods that apply to their insurance policies and how they can affect their rights and responsibilities.
Frequently Asked Questions (F&Qs)
What is the difference between waiting period and elimination period?
The waiting period and the elimination period are two different terms that can apply to insurance policies, especially health insurance and disability insurance. The waiting period is the period of time that begins when your policy is issued and ends when the policy owner can start to receive benefits. The elimination period begins at some point after the waiting period is over and when the insured incurs a benefit trigger event, such as an injury, illness, or disability.
For example, with long-term disability insurance, you will receive your first payment about 30 days after eligibility. If you have a 30 day waiting period, expect your first payment on or around day 60 of disability. A 60 day waiting period, then is 90 days. A 90 day elimination period is 120 days.
The waiting period and the elimination period affect the cost of your insurance premium and the amount of benefits you can receive. In general, the shorter the waiting period and the elimination period, the higher the premium will be; the longer the waiting period and the elimination period, the lower the premium will be. Therefore, it is important to choose a waiting period and an elimination period that suit your financial situation and your risk tolerance.
How do waiting periods affect my premium and benefits?
Waiting periods affect the cost of your premium and the amount of benefits you can receive from your policy. In general, the shorter the waiting period, the higher the premium will be; the longer the waiting period, the lower the premium will be. Therefore, it is important to choose a waiting period that suits your financial situation and your risk tolerance.
How can I reduce or waive my waiting period?
There are some ways you can reduce or waive your waiting period depending on your insurer and plan. Some of them are:
- Buying a policy at a younger age: Some insurers may offer lower or no waiting periods for younger customers who are less likely to have pre-existing diseases or make claims.
- Maintaining continuous coverage: Some insurers may give credit for previous coverage that you had with another insurer or employer and reduce or waive your waiting period accordingly.
- Opting for co-payment or voluntary deductible: Some insurers may offer lower or no waiting periods if you agree to share a part of the claim amount with them or pay a fixed amount before they pay the rest.
- Paying an additional premium: Some insurers may allow you to buy a rider or an add-on that can reduce or waive your waiting period for an extra cost.
