A waiting period is the period during which a policyholder is not allowed to claim even though the policy has commenced. The main reason for imposing a waiting period is to prevent policyholders from anti-selecting against the insurance company. Waiting periods differ for different benefits. On a dread disease benefit, for example, the waiting period may only apply to certain diseases.
Since waiting periods reduce anti-selection, they will also reduce the insurance premium. It is important to note that companies impose waiting periods for different diseases and conditions. It is therefore important to familiarise yourself with the waiting period applicable to the product you are considering.
Some products impose a survival period, which is the length of time that a policyholder must survive from the time that they claim for a benefit before the claim will be paid by the insurance company.
The survival period aims to ensure that these insurance products financially assist policyholders who are still alive with any needs they may have as a result of their change in lifestyle brought on by a dread disease and/or disability. It is not the intention of these products to pay a benefit on death and this is what the survival period prevents.
A typical survival period is in the range of 14 to 28 days. Some companies now offer no survival periods on their accelerated benefits. The definition in the policy document would usually state that the policyholder must survive for this period “without the use of a life support system”, although there are companies that do not refer to “life support system” which therefore includes life support.
The use of the survival period ensures that only valid claims are paid and therefore helps reduce premiums on dread disease and disability cover.
The term elimination period refers to the period between the date that an illness or disability commences and the beginning of the benefit payment. The elimination period is often used to prevent short term disability or illness claims. An elimination period will therefore reduce the insurance premium.
Elimination periods are common for dread disease and disability benefits. Common elimination periods are between 14 and 28 days for dread disease products, and one month, two months and six months for lump sum disability products.
The term off period applies to disability cover. Even though a policyholder has claimed a disability income benefit, there may still be a chance that he or she will recover and return to work.
But even if a policyholder has returned to work it may happen that his or her condition worsens again and that another claim against the disability benefit may be necessary. The insurance company would deem the disability to be from the same cause if it occurred within the off period (usually about three months). This period is measured from when the policyholder goes back to work.
If there is no off period, and the policyholder had a relapse and hence wanted to claim the benefit again, then the policyholder would have to wait till the end of the waiting period (so for another three months, for example) before the benefit payment would continue.