How long is the life insurance waiting period?

Life insurance waiting period

Some life insurance plans have what is called a “waiting period.” This is the window of time between when you enroll in the plan and when it becomes effective. If you die within the window, your beneficiaries will receive nothing except a refund of the premiums you have already paid. It’s important to know how life insurance will affect your loved ones as you plan. Also, life insurance is a piece of your overall estate plan, which is an important financial process that should not be taken lightly. A financial advisor can help you create the right estate plan to meet all your financial needs.

What is life insurance?

Life insurance is a form of insurance that helps take care of your friends or family after your death. With life insurance, you take out a policy for a given coverage amount and name one or more beneficiaries. You pay a premium, usually every month or every quarter, based on mortality-related factors such as age and health. When you die, the insurance company issues a payout to your beneficiaries in the amount of your policy coverage.

For example, say you take out a $1 million life insurance policy and name your spouse as your beneficiary. At the time of your death, the insurance company will issue a $1 million payout to your spouse. If they also pass, the insurance company will issue payments to their heirs.

Like other forms of insurance, life insurance is designed to help pay for unexpected expenses. Unlike many forms of insurance, however, life insurance is not designed for you. Instead, it helps your loved ones. For example, it can help them pay for costs associated with your funeral arrangements, or it can help partners and dependents replace your income if you had a job when you died.

What is the waiting period?

Life insurance waiting period

Life insurance waiting period

When it comes to buying life insurance, there are two common definitions of waiting period, the pending application waiting period or the death benefit waiting period. Both have the same result that the waiting period prevents the life insurance policy from paying benefits if something happens to you. Let’s take a closer look at how each one works.

Pending Application Waiting Period

Almost all life insurance comes with a waiting period after your initial application. This is the period between when you apply for your policy and when the insurance company approves you to begin coverage. This can take as little as a few minutes for an automated system, to several weeks. During the application waiting period, you neither pay premiums nor have any type of coverage. If something happens to you during this waiting period, your beneficiaries will not collect anything.

Death benefit waiting period

Some life insurance policies have what is known as a death benefit waiting period. This is the time between when the insurance company approves your policy and starts collecting premiums and when your beneficiaries are eligible to receive death benefits. If you die within the death benefit waiting period, your beneficiaries will not receive death benefits under your policy. Instead, most policies will issue a payment based on some proportion of the premiums you have already paid to date.

Why do plans have a waiting period?

An application waiting period exists to determine if the company wishes to issue insurance. The company uses this time to gather information about personal habits, such as if you smoke or drink heavily. It will usually ask for a medical exam and any other data related to your actual life expectancy. Based on this information, the company determines your risk profile and life expectancy and sets its premium accordingly.

In contrast, the death benefit waiting period exists to allow the insurance company to control the risk of near-term death. Most policies write a complete death benefit waiting period, which means it applies regardless of the cause of death. However, the aim is to ensure that the company does not routinely write policies that it must pay immediately. Thus, it works like a clause in most contracts that stops payment in case of suicide. The company does not want to insure people who have reason to know that they will die soon.

The bottom line

Life insurance waiting period

Life insurance waiting period

A life insurance waiting period is a window of time when your beneficiaries cannot collect death benefits under your life insurance plan. Application waiting periods are the time between when you apply for insurance and it is approved, while death benefit waiting periods are the time between when you receive coverage and when your death benefits apply. Some type of waiting period is usually standard, which should be factored into your plans when purchasing life insurance.

Tips for buying insurance

  • Helping your loved ones isn’t just about insurance. It’s all about putting yourself on a good financial footing throughout your life, and you need the help of an experienced professional like a financial advisor to help you make the right plan. SmartAsset’s free tool You’ll be matched with up to three financial advisors serving your area, and you can interview your advisor at no charge to decide which one is right for you. If you are ready to find an advisor who can help you achieve your financial goalsGet started now.

  • Like all insurance, life insurance is about managing risk. In this case, though, you’re managing the risk to your loved ones, not yourself. Learn more about how to determine the amount of coverage you need.

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