How do the lengths of the waiting (elimination) period and the maximum benefit period affect the premium cost of disability insurance?
The elimination (waiting) period in disability income insurance serves the same purpose as a deductible in medical expense, automobile and other types of insurance. It eliminates initial, or “first-dollar,” benefits from coverage under the insurance policy. As such, longer waiting periods result in lower premiums. There is a similar, but opposite, relationship between varying maximum benefit periods and the premium cost for disability income insurance. As the length of the maximum benefit period increases, total premium cost also increases. When limited dollars are available to purchase disability income insurance, it is generally recommended that longer waiting periods be selected so that longer maximum benefit periods can be afforded. Of course, the amount of cash reserves available to the insured as a “safety net” should also be factored into the determination of the length of the waiting period that is selected.
