Disability insurance is a safety net that all men and women can benefit from, regardless of the job they do.
But for physicians that earn a high annual salary, it’s crucial.
Like all insurance policies, disability insurance policies can be complex and difficult to grasp. There are many components and stipulations you need to be aware of in a disability insurance policy.
One of the most vital parts of a policy to comprehend is the disability insurance elimination period.
Today we’re discussing everything you need to know about the disability insurance elimination period. Understand your choices before you sign on the dotted line.
What is the Disability Insurance Elimination Period?
The elimination period is a waiting period. It is the amount of time between the date of your injury or illness and the day on which the policy starts to pay you benefits.
Every policy has its own elimination period, and they can vary quite a bit, depending on the policy you have.
Sometimes, it is referred to as the “waiting period” or the “qualifying period.” Despite its name, it has absolutely nothing to do with your policy being eliminated or canceled in any way.
The Probationary Period
The elimination period should not be confused with what other insurance policies refer to as the “probationary period.” The probationary period is a waiting period of sorts, but it has nothing to do with you becoming ill or injured. It’s simply the period of time from which you purchase the policy to the date when you are able to file a claim.
In fact, most disability insurance policies have no probationary period at all. In most cases, you can file a claim as early as one day after you purchase your policy.
The Accumulation Period
The elimination period is also not the same as the accumulation period, which is the time it takes to satisfy the elimination period, per your disability insurance company. Most disability plans have an accumulation period twice that of the elimination period, for reference.
The elimination period is a critical factor when choosing a disability insurance policy. But it’s just one of several aspects you need to understand.
You should also be aware of the definition of disability, the monthly benefit, and the benefit period (how many months or years you can collect benefits).
Related Reading: What to Do When Your Disability Insurance Benefit Period Ends
How Long Should the Elimination Period Be?
The length of time of an elimination period varies from policy to policy. Some policies have a 30-day elimination period. Some are as long as two years.
Before selecting a policy, think about your other sources of income and what savings or other assets you have. These factors can help you determine how long you can sustain yourself and your family without income or insurance benefits.
If you have significant savings, you can get away with a policy that has a longer elimination period. If you have minimal savings, you’ll want a shorter elimination period.
The most common elimination period is 90 days.
Short Term Disability vs. Long Term Disability Elimination Periods
Elimination periods vary depending on whether you seek short term disability or long term disability coverage.
Short term disability insurance policies have shorter elimination periods. Most policies have a waiting period of 0-90 days once you’ve qualified and proven that you are eligible to receive disability benefits. To do so, you’ll need to meet the “definition of disability” as specified in your policy.
Long term disability insurance policies usually have longer elimination periods. In some cases, they can be as long as two years. In addition, most policies stipulate that the policyholder has to be disabled every day of the period to qualify.
Some people have their own disability insurance policy in addition to one offered by an employer. In this case, you may be able to collect some short term benefits during the elimination period of your long term policy. But it all depends on the insurer and the policy.
Short Term vs. Long Term Policies
When deciding which type of disability policy to obtain, you’ll need to weigh your options to determine which one is right for you.
A short term disability policy has a typical elimination period of 0-90 days and usually pays benefits for up to two years.
Elimination periods for long term disability insurance can be as long as 720 days. But such policies have benefit periods of five years, ten years, or even the remainder of your entire life.
Does the Elimination Period Affect Monthly Premiums?
It stands to reason that a shorter waiting period is better. Why would you want to wait two years if you could start receiving benefits in two months?
There’s one main reason that physicians choose longer elimination periods over short ones:
The longer the waiting period, the less you’ll pay in monthly premiums.
If you’re looking to pay lower monthly premiums, you may be able to save significantly by opting for a longer waiting period. But if you do so, make sure you have other income or savings to get you through that time.
What if I Have a Recurring Disability or a Pre-Existing Condition?
If you have a pre-existing condition, the insurance provider is going to ask you questions about it during the application process. With a pre-existing condition, it’s common to see an exclusion but you may be able to get a short reconsideration period where the exclusion is reconsidered. This usually requires that there have been no further symptoms or treatment for a period of time.
A one-year waiting period is considerably longer than the 0-90 day period granted to someone without a pre-existing condition. Yet it’s one of the best ways for insurance companies to protect against people who try to make a disability claim on an already existing issue. By opting for a longer elimination period, you may be able to get an insurance company to make a more favorable offer to you in light of your health history.
Recurring Illness or Injury
But what happens if your health improves, you return to work, and your injury or illness returns?
Let’s say you suffer an injury or illness and qualify to receive benefits. You endure the elimination period. You start collecting benefits. Then, your health improves, and you return to work. And then your illness or injury returns.
In the scenario above, most insurers will not make you wait out the elimination period again. Cancer patients who undergo treatment and then have their cancer return are a good example of patients in this group.
If your injury or illness is the same as the one you qualified for already, you’ll only have to wait out one elimination period. If it’s a completely separate issue, the elimination period will go back into effect and start over.
It all depends on how your insurance coverage defines what disability is.
Some define disability as the complete inability to perform your own medical specialty. Others have a stricter definition, where you must be disabled in a way that prevents you from doing any job at all. Some require that you can’t do basic daily functions on your own, such as eating, bathing, and using the restroom. Some require that you are under a doctor’s care – others do not.
The definition of disability in your policy is one of the most important aspects of the entire contract and influences the rest of the policy.
When Does the Elimination Period Start?
The elimination period starts on the day you suffer your injury or illness.
It does not start on the day you file your disability claim.
It does not start on the day you qualify or meet the definition of disability as stipulated in your policy.
It begins the day of your injury or the day of your diagnosis.
If your elimination period is 90 days and you meet the disability definition after 30 days, you’ll still need to wait 60 days to start collecting.
Most insurers take 30 days to process your first benefit payment. So with a 90 day elimination period, you can expect to receive your first check about 120 days later.
Keep in mind that will include benefits starting on day 91.
How to Get Through Your Elimination Period Financially
As a physician earning a high annual salary, getting through the elimination period without income can be a challenge.
Here are some tips on how you can make it through the waiting period and cover your expenses until your benefits start to payout.
1. Dip into your emergency fund
It’s crucial that you have an emergency fund that can cover all of your financial expenses. At the minimum, your fund should be able to sustain you for six months, though two years is ideal. The bigger your emergency fund is, the less you’ll have to worry about a loss of income.
When calculating your monthly expenses, consider every single financial obligation. Emergency funds need to cover more than your mortgage, utilities, health insurance, and car payments.
Don’t forget about things such as student loan repayments, real estate taxes, and credit card debt or any other debts. College tuition for children, insurance premiums, food, and any other expenses you have on a regular basis should all be taken into account.
2. Sell stocks
If you have investments in the stock market, you may need to sell some shares while waiting for your disability insurance benefits to begin.
3. Homeowners – take out a second mortgage
With a home equity line of credit, you can enjoy quick access to cash while you’re waiting for your elimination period to end. Just remember – you’ll need to pay it back with interest, so make sure to repay it as soon as your benefits kick in.
4. Take cash advances against a life insurance policy
Some life insurance policies offer an option called an accelerated death benefit. If you’re diagnosed with a terminal illness or need money for medical treatments and healthcare costs, this benefit can cover those costs.
Qualifications vary from policy to policy. Check with your insurance agent to see if you can use this option during a disability insurance elimination period.
5. Tap into your retirement account
Dipping into funds in your retirement account is not an ideal situation, especially if you’re nowhere near retirement age. But, in an emergency, it is an option.
If you’re in your 30s, 40s, or 50s, treat this option as an absolute last resort. Not only will you be dwindling down the money you’ll need in retirement, but you’ll pay penalties for early withdrawal.
Here’s the Bottom Line:
Every disability insurance policy comes with some type of elimination period.
Before you sign up for a new policy, make sure you understand what the waiting period is as well as what the definition of disability is. You’ll need to be able to meet the definition of disability to qualify for your benefits, regardless of how long the waiting period may be.
Short-term care insurance policies have:
- Shorter elimination policies (usually 0-90 days)
- Shorter length of benefit payouts (usually up to two years)
- Higher monthly premiums
Long-term care insurance policies have:
- Longer elimination policies (can be up to two years)
- Longer benefit periods (can pay you for life)
- Lower monthly premiums
The elimination period is the time between the date of your injury or illness and the date you’re eligible to start receiving benefits. It’s a time-based deductible. The waiting period is the same regardless of when you file your disability claim, though it’s always best to file your claim as soon as possible.
The most common elimination period is 90 days. Policies with longer periods have lower premiums, but you’ll need some other source of income to cover your financial obligations. With a sizable emergency fund, income from your spouse, and other assets, you may be able to sustain a two-year waiting period. But for most people, 90 days is preferred.
Don’t wait until you get sick or injured to seek a disability insurance policy. The time to get one is now.