Certified Financial Consultant (CFC) Practice Exam

What does a 30-day waiting period in a disability income policy indicate?

1. An elimination period

2. A coverage period

3. A renewal period

4. An initiation period

The correct answer is: An elimination period

A 30-day waiting period in a disability income policy indicates an elimination period. This is a specified time frame during which the policyholder must wait before benefits from the policy begin to be paid out. The purpose of this elimination period is to prevent the system from being overloaded with short-term disabilities that may not require long-term support, allowing insurers to manage their risks more effectively. The elimination period starts from the date of the disability and lasts until the policyholder meets the criteria for receiving benefits. For many policies, this waiting period can vary in length; however, a 30-day period is a common choice. It’s important for policyholders to be aware of this period, as it directly affects when they will receive financial support after becoming disabled. Understanding the concept of the elimination period is crucial as it differentiates it from other time frames associated with insurance policies, such as coverage periods, renewal periods, or initiation periods. The coverage period refers to the duration during which the policy provides coverage for disabilities, while the renewal period pertains to the intervals at which the policy can be renewed or updated. The initiation period is not a standard term used in disability income policies, further highlighting the specific function of the elimination period.