Understanding Waiting Periods
If you become disabled, you'll have to wait a certain number of days before you are entitled to collect disability benefits. You choose the length of your waiting period when you purchase your individual disability income insurance policy. You'll generally be offered a choice of waiting periods ranging from 30 to 720 days. You should base your decision on two factors: (1) how the waiting period affects the premium you pay, and (2) how long you could live off your savings without receiving disability benefits.
How does the waiting period you choose affect the premium you pay?
Like auto and health insurance deductibles, the longer the waiting period, the lower the premium. For example, a policy with a waiting period of 60 days costs more than one with a waiting period of 180 days--often substantially more. Why? Because statistically you're more likely to recover and return to work within six months than within two months. So, the insurance company is more likely to have to pay a claim if your waiting period is shorter.
How long could you live off your savings without receiving disability benefits?
Before choosing a waiting period, you should think about how long you could live off your savings if you became disabled and were unable to work and earn a living. If you have a lot of money saved up or have other sources of income, you might want to choose a longer waiting period. On the other hand, if you have little or no money saved up and have no other income, you'd be wiser to choose a shorter waiting period.
After weighing the premium cost against the coverage you need, you should choose the shortest waiting period that you can afford. When you're considering your options, keep in mind that in most cases you won't receive an insurance payment until you are owed a month's benefit. For example, a 90-day waiting period means that you will probably be out of work for 120 days before you receive any money. So if you choose a 90-day waiting period, you should have enough money saved up to support yourself for four months, not three.