When you enroll in an insurance plan for your retirement, such as Medicare, life insurance or long-term care insurance, your policy will usually include an elimination period. An elimination period is the time between when an injury or illness begins and when you receive insurance benefits or payments. It might also be called a qualification or waiting period. During this time, your insurance company confirms that you qualify for certain benefits.
Understanding how this process works can help you choose the right insurance for your retirement. And because benefits aren't paid during this time, this knowledge can help you to make financial plans to cover costs while you wait for your insurance to kick in.
Typical Elimination Period Time Frames
Elimination periods can run anywhere between 14 days and several years, depending on your policy and the type of insurance you have. During an elimination period, you're responsible for covering every medical cost and living expense.
The length of your waiting period affects your insurance premium. Generally, the longer your elimination period, the lower your premium. The shorter the period, the more you pay. Typically, 90-day elimination periods come with the best cost-benefit trade-off for most people.
Choosing the Right Elimination Period
Your retirement insurance policy might let you choose your elimination period. When choosing one, you'll first need to consider how paying a higher premium will affect your financial situation. Then, estimate how you'll fund your living expenses during the waiting period if you chose the longer wait.
Your emergency fund should have enough money to cover your living and medical expenses. Knowing how big a tab you'll run up while waiting for your retirement insurance benefits to take effect can help you make smarter choices when setting up your plans.
Here are some common examples.
- Long-term care insurance. For long-term care insurance, you're responsible for daily living expenses and the cost of in-home care, medical attention and the daily cost of staying in a nursing home during your elimination period.
- Health insurance. For health insurance, expect to pay for medical services, medication and equipment used. Note, too, that certain illnesses might have waiting periods of more than a year.
- Life insurance. Life insurance policies might offer waiting periods as long as two years. (Remember, though, that the longer waiting periods usually mean lower premiums.) And while your policy could still pay a death benefit if you die during the waiting period, your insurer could investigate the death and challenge the claim.
Consider, too, how your insurer defines the start of your elimination period. Is it the date you first receive medical attention for your condition, illness or injury? Or is it when you first move into a nursing home? Record this information, and save your receipts in case you need them to verify your dates.
Generally, longer elimination periods mean lower premiums — but you're responsible for any out-of-pocket costs while you're waiting. Knowing your options can help you make the best choices for your financial situation.