What is a waiting period?
Waiting periods are generally applied to life insurance policies such as income protection. It basically means that when you apply for this cover there will be a fixed amount of time that you need to be off of work in order for your policy to start accumulating benefit. This means that there will be a time frame that needs to be completed before the benefit is paid out to the beneficiary. The waiting period will depend on the benefit period that you choose which generally ranges from 14 days to 2 years.
How does the waiting period work?
Knowing the waiting period that comes with your policy can help you better prepare by using your sick leave payment or your savings to cover your expenses while you wait for the benefit to be paid out. How a waiting period will work is that if a person takes out a $500,000 life insurance policy that has a two-year waiting period, and the beneficiary passes within these years, only receive the premiums that have been paid up until that point will be paid out. What this means that the beneficiary will not be able to receive the full $500,000 that they had applied for.
What is the difference between the waiting and the benefit period?
Life insurance policy holders can sometimes confuse the benefit and waiting period. It is vital to know that there is a difference between the two. A waiting period is essentially the length of time that you will have to wait before your benefits are paid out. The waiting period could be between 2 and 104 weeks.
Does it matter which waiting period I choose?
The length of your waiting period does affect the rate of your premiums, which is another reason why life insurance policy seekers should carefully consider the features of their income protection policy. The shorter your waiting period is the more you will pay in premiums.
Things to keep in mind when comparing waiting periods
It is important that you choose a policy that will be beneficial to your situation. If you are not sure which plan will be best suited for you, you can speak to an insurer or a financial advisor who will be able to assess your individual situation to find a policy that works for you. Other things to consider when choosing a waiting period is:
- Your employment status. This will help you choose something that is tailor-made for you whether you are self-employed, a business owner, or employed.
- Employment benefits for sick leave. Knowing whether your employer provides paid sick leave can make the difference in what will be suitable for you.
- Savings that will act as a buffer. Keep in mind that you will need adequate savings set aside to take care of you while you wait for your benefits to be paid out.