Waiting Period for Life Insurance
What is a Waiting Period for Life Insurance?
When you buy a life insurance policy, it doesn’t activate your insurance protection immediately – there is a waiting period before the coverage begins.
Before buying a policy make sure you are aware of the waiting period and understand how it applies to your insurance coverage.
What to Know About The Waiting Period
Basically, a waiting period as it relates to life insurance is the period of time the insured (person insured by the policy) must wait before a new life insurance policy will pay out a death benefit on the policy should the insured die.
With a typical life insurance policy, that’s what is known as the Contestability Period.
It applies to the first two years the insurance policy is In Force (Providing Coverage).
That doesn’t mean the insurance carrier won’t pay out a death benefit claim on your policy if you die within the first two years you are insured.
However, the life insurance company has the option to investigate and even challenge a claim within the first two years the policy is in force.
Protection Against Insurance Fraud
The 2 year waiting period is a way for the insurance companies to protect against fraud.
Applicants have been known to lie or misrepresent the facts on their applications for life insurance coverage, denying that they have certain health problems.
This is known as insurance fraud, and if the insurer can prove it, they can deny (do not have to pay) paying the death benefit on your policy.
Example of Fraud
For example, let’s say you had a cancerous growth removed successfully 9 years ago that you did not disclose on your life insurance application. And for whatever reason, it also didn’t appear in any medical databases in your medical history. The insurance company issues the policy based on the assumption you never had any form of cancer.
But seven months after your insurance policy is issued, your cancer returns, and you die within the first 2 years the policy is In Force.
The insurer can deny paying the death benefit to your beneficiary, citing your misrepresentation of your history of cancer as evidence of insurance fraud.
The Result:
In most cases, the only funds your beneficiaries will receive from the insurance company will be a refund of the premiums you paid for your policy.
Some insurance companies will also add interest in addition to the premiums you paid for your policy.
But by denying the death benefit and returning your premiums, it’s as if your policy never existed.
Waiting Period and Suicide
Perhaps the most common exclusion in a life insurance policy waiting period is Suicide of the insured person.
It’s standard language in a life insurance policy that the death benefit won’t be paid for suicide, if the suicide of the insured person happens within the first two years the policy is In Force.
This applies to traditional life insurance policies as well.
This exclusion is to prevent people from taking out a life insurance policy then committing suicide to provide a large financial windfall for their loved ones.
Life insurers use the waiting period to protect themselves.
Guaranteed Issue Life Insurance
There’s a type of life insurance known as guaranteed issue life insurance, and it has an even more restrictive waiting period than other regular types of life insurance.
NOTE: It’s a real waiting period because it’s not in place strictly to prevent insurance fraud, but to protect against insuring those in poor health, too.
This is a type of life insurance policy for people who do not qualify for coverage because they have serious health issues which may severely shorten their life expectancy.
For example, an applicant for life insurance who is determined to be in poor health, will not qualify for a standard life insurance coverage.
Guaranteed issue life insurance covers that need, but it does at a higher price than premiums charged for traditional life insurance policies that fully underwrite the applicant, and require a medical exam.
First, the maximum death benefit of guaranteed issue plans is usually around $25,000 or less.
Second, premiums are usually much higher than premiums charged for traditional life insurance.
Third, which may be the biggest disadvantage, the life insurance policy will not pay out a death benefit if you die within the waiting period (usually two years from date of issuance) for any reason other than an accident.
A typical guaranteed issue life policy has a waiting period of two (or three) years.
Since the insurer is issuing a guaranteed issue policy on an applicant known to be in poor health, and likely to die at any time in the near future, they protect themselves by including the restrictive waiting period of two years.
If this sounds unfair, it’s because guaranteed issue insurance is life insurance coverage for people who wouldn’t qualify for coverage otherwise.
Why You May Want Insurance with No Waiting Period
The whole purpose in obtaining life insurance is to have a death benefit available upon your death.
That can happen any time from the day after you accept your insurance policy, up until 30 or more years later.
But the point of having life insurance is to have financial resources available to your loved ones immediately, from the first day you get approved for your policy.
For example, let’s say you’re a young adult with young children. You have limited financial resources, particularly with savings and investments, but substantial future financial obligations because of your children.
A life insurance policy will give you the ability to provide several hundred thousand dollars in cash to take care of your children and family if you should pass away unexpectedly in the next few years.
However, a waiting period on your policy may stop that benefit from being paid out.
Fortunately, standard life insurance policies will pay out a death benefit immediately after your insurance policy is issued.
But, the only exception would be if you failed to state a pre-existing medical issue on your application, and that health problem ended up being the cause of your death.
Otherwise, the life insurer will pay out the proceeds from your death benefit to your beneficiaries.
Is There Life Insurance With No Waiting Period?
Yes. Regular life insurance doesn’t have any waiting period, other than the two-year contestability period.
Guaranteed issue life insurance plans do require a 2-3 year waiting period.
One of the most common reasons for taking out a guaranteed issue life policy is to be able to provide for at least final expenses (burial and funeral costs) upon your death.
Keep in mind, If you have serious health issues, your passing may possibly occur within the first two years your life insurance policy is In Force.
However, guaranteed approval life insurance is the type of policy most often purchased by those who have a terminal illness.
Graded Death Benefit Guaranteed Issue Life Insurance
Some guaranteed acceptance life policies offer a graded death benefit.
For Example: The insurance policy may pay between 25% and 30% of the full death benefit if you die within the first year the policy is in force.
That pay out amount may rise to 50% or 60% if you die in the second year, after which your beneficiaries will be entitled to 100% of the death benefit.
The graded death benefit doesn’t eliminate the waiting period, but it does at least provide partial death benefits if you die within the first 2 years of being insured.
However, not all insurance carriers offer a graded death benefit on their guaranteed approval policies.
Guaranteed acceptance policies require no physical exam, and either ask limited health questions, or none at all. Some of these plans are advertised on TV as being available for people between the ages of 50 and 85, with no medical questions asked.
NOTE: When applying for life insurance, ask your insurance agent how long the waiting period is for coverage to begin, and if there are any exceptions to your life insurance coverage and payout of death benefits.
Once your insurance policy is issued, make sure to review the policy to confirm how any waiting period works for your life insurance coverage.
What Happens If You Pass Away During the Waiting Period?
If your life insurance has a waiting period and you die during that time, your beneficiary will be paid all of the premiums you paid during that time.
However, your beneficiaries will not receive the death benefit.
There may be some exceptions to this rule depending on the cause of death. There are also many insurance companies that will pay out death benefits during this time period, but will conduct an investigation into your death, to confirm it wasn’t a case of insurance fraud.
This is an important question to ask your insurance agent when you apply for life insurance. You’ll also want to make sure that your beneficiaries understand the waiting period to avoid any delays or surprises.
How Do I Get a Policy Without a Waiting Period?
There are many life policies that are available without any waiting period.
If you’re in good health and want life insurance without any waiting period, ask your insurance agent to move up the effective date on your policy.
The Effective Date is the day that insurance coverage begins. If you are in good health and considered a low-risk, your insurance carrier may agree to move up the effective date of your coverage.
Fully Underwritten Life Insurance
Another option for healthy individuals is to look for a fully underwritten policy.
These can take time to apply for and get approval (up to 4-6 weeks), and are not always available, but there is no waiting period once the insurance policy is issued.
If you are getting a fully underwritten policy, you will need to undergo a medical exam and answer some questions about your lifestyle and health history. It’s important to answer all questions honestly when applying for this type of policy. If you misrepresent yourself or health history, it could result in loss of your coverage.
If you do have a chronic health problem or are older, it will be hard to get insured for life insurance, but it isn’t impossible. Guaranteed approval policies are the best option in this case.
Review – Life Insurance Waiting Periods
Insurance companies put waiting periods in place for high-value insurance life insurance policies in order to prevent insurance fraud.
However, there are also plenty of options for those who want to avoid the 2 or 3 year waiting periods.
When buying any new policy, it’s important to understand how the waiting period works.
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