A “waiting period” in the context of life insurance and living benefits (such as disability insurance or critical illness insurance) in Canada refers to a predetermined length of time that must pass at the beginning of a policy before coverage becomes effective or before benefits are payable to the insured. This period serves various purposes, depending on the type of insurance product.
Key aspects of waiting periods include:
Disability insurance
For disability insurance, the waiting period (also known as the elimination period) is the time between the onset of a disability and when benefit payments begin. Common waiting periods are 30, 60, 90, or 120 days. Choosing a longer waiting period can lower the premium cost for the policyholder but means they must be able to cover their expenses for a longer time before benefits start.
Critical illness insurance
In critical illness insurance, the waiting period may refer to a survival period that must be met following the diagnosis of a covered critical illness before the benefit is paid out.
Health and dental insurance
Waiting periods for health and dental plans refer to the time between the start of the policy and when coverage for certain benefits begins. This is often used to prevent individuals from signing up for coverage only after they realize they need treatment, or from signing up for coverage only to immediately cancel after they have claimed the particular benefits they’re interested in.
Group insurance plans
Employers offering group insurance benefits may impose a waiting period before new employees become eligible for coverage. This period often aligns with the probationary period of employment.
Pre-existing conditions
Some insurance policies include waiting periods specifically related to pre-existing conditions, where conditions that existed before the policy start date may not be covered until a certain period has passed.
Purpose
Waiting periods help manage the risk of over-utilization and adverse selection, where individuals sign up for insurance knowing they will soon need to make a claim. This helps keep premiums more affordable for all policyholders.