In relation to disability income policies, what is the relationship between waiting periods and premiums?

Disability income policies typically have a waiting period, also known as an elimination period, before benefits start being paid. The duration of this waiting period is directly related to the premium cost of the policy.

When an insured chooses a shorter waiting period, they will usually encounter higher premiums. This is because the insurer is taking on additional risk by having to pay benefits sooner if the policyholder becomes disabled. Since the insurer may need to cover costs for a longer period of time with a shorter waiting period, they charge a higher premium to compensate for that risk.

Conversely, opting for a longer waiting period generally results in lower premium costs. In this scenario, the policyholder assumes more risk by waiting longer for benefits to kick in, which decreases the insurer's financial exposure and thus, allows them to lower the premium.

Therefore, the connection between waiting periods and premiums is a critical aspect of how disability income policies are structured, influencing both coverage options and affordability for consumers.