If a person can’t work because of a disability, disability insurance can replace some of the lost income – but only after the elimination period has passed. Many people don’t have enough savings to handle a long elimination period, and the financial situation can become much worse if the first disability benefits check takes longer than expected. Protect your clients – and your reputation – with the elimination period eliminator.
What Is the Elimination Period in Disability Insurance?
The elimination period is sometimes called the waiting period. When a policyholder experiences an eligible illness or injury, they don’t receive their first long-term disability benefits check immediately. They have to wait for the elimination period to lapse.
This can be a problem for people who lack sufficient savings – and that’s most people.
According to a Motley Fool survey of Americans, the median savings amount is $4,500. A survey from Willis Towers Watson found that 38% of employees are living paycheck to paycheck, and even among employees earning more than $100,000 a year, 18% live paycheck to paycheck.
Let’s say you have a disability insurance policy. You’re confident you’ll be covered if you can’t work because of disability. Then you experience a disability, so you contact your insurer. That’s when you find out that you won’t receive any money for months because of the elimination period. How are you going to survive in the meantime? It’s a stressful situation – and it’s one that can be avoided with the right coverage.
How Long Is the Elimination Period?
The exact length of the elimination period varies depending on the policy terms. It’s often around 90 days, but it could be shorter or longer. One policy might have an elimination period of 60 days, while another policy might have an elimination period of 180 days.
Many policyholders opt for longer elimination periods because it’s an easy way to bring the premium cost down. It’s a little like choosing a car insurance policy with a large deductible. This can be a great way to save money on your car insurance premium, as long as you have some savings set aside to cover the deductible.
The elimination period is similar, but it’s measured in time instead of money. Choosing a longer elimination period can be a fantastic strategy for people with sufficient savings – but it can be disastrous for people who don’t have enough savings. Since many people don’t have enough savings to cover multiple months without income, a long elimination period can be a serious financial burden.
Even worse, the actual time that policyholders have to wait before they actually receive their first check can be longer than the elimination period.
The end of the elimination period is when you become eligible for benefits, but you might not get the first payment for 30 days. That’s another month without income, and it can catch many policyholders off guard.
A Financial Disaster Waiting to Happen
Let’s say you have a disability insurance policy with a 90-day elimination period. You make sure you have enough savings to cover three months of expenses, so you think you’ll be fine if anything happens.
Then something happens. You’re diagnosed with cancer, and between the illness and the treatment, you can’t work. At least you have some emergency savings and disability insurance.
From there, the situation goes from bad to worse. First, you have a lot of medical bills, as well as travel costs associated with treatment. Then you find out that you’re not going to get your first check in 90 days. You’re going to get it in 120 days. You only had enough savings to cover three months, and now you need enough money to cover four months, plus you have medical bills.
At this point, you’re feeling pretty angry. You wish your insurance agent had explained things better. You might even be thinking about filing an errors and omission lawsuit.
How to Avoid Problems with the Elimination Period Eliminator
Obviously, no one wants the above scenario to play out in real life. The good news is it doesn’t have to.
You can offer critical illness insurance as the elimination period eliminator.
What Is Critical Illness Insurance?
Critical illness insurance is a type of insurance product that provides a payment if the policyholder is diagnosed with a covered critical illness, such as cancer or a heart attack.
Whereas disability insurance provides monthly benefits, critical illness insurance typically provides a lump-sum payment. The funds can be used however the policyholder wishes, and there is no elimination period.
Is Critical Illness Insurance Worth It?
The downside to critical illness insurance is that it provides fairly narrow coverage. The lump sum payment varies, but it may only be around $10,000. Even a larger benefit amount might not last very long between medical bills and lost wages.
However, when combined with disability insurance, critical illness insurance can be a smart move. Coverage tends to be very affordable, so tacking it on to disability insurance doesn’t raise the monthly premium costs very much.
Furthermore, offering critical illness insurance to your clients can be a win-win situation:
- The client receives important education. When you pitch critical illness insurance, you can explain how the policy will provide a lump sum benefit that can be used to cover expenses during the elimination period. This gives you a chance to educate your client on the importance of planning for the elimination period, and you can use this opportunity to go into detail about how the elimination period works and how you might have to wait an additional 30 days for payment.
- The clients receive additional financial protection. Many people have a hard time believing that disability could ever happen to them, and they may not be as prepared as they think. Dealing with a serious illness is already difficult enough. Dealing with financial problems on top of that is even worse. Critical illness insurance provides an extra layer of financial protection, allowing them to focus on their health and their loved ones.
- You earn an extra commission. Cross-selling is an effective way to make more sales and boost your commissions. If the client can benefit from the policy, why shouldn’t you be the one to sell it?
- You can protect your reputation. You probably tell your clients about the elimination period. You might even warn them about the extra 30 days that they might have to wait before they actually receive their first payment. But your clients might not listen. Years later when they experience a disability and the financial hardship that goes with it, they may blame you for failing to educate them on the risks. They may even sue you for leaving them unprotected. You can protect your reputation and possibly even avoid professional liability lawsuits by cross-selling critical illness insurance and explaining why it’s important.
When people buy disability insurance, they need to balance the cost with the protection and find a level that works for them. They can’t do this if they don’t fully understand the costs and risks involved. You can help them by explaining the elimination period and offering the elimination period eliminator, i.e., critical illness insurance. It’s good for your clients, and it’s good for you.
Want to learn more about the Elimination Period Eliminator? Download our free report, as well as Sales Strategy Quick Tip #2 – the Bookend Sales Method.