What Is A Life Insurance Waiting Period: Can I Bypass It?
With most kinds of life insurance, you’re not fully protected immediately. Typically, there’s a timeframe called a “waiting period” in which your insurance protection is limited. If you die within this period, your death benefit may be reduced or not paid at all.
But, why do these periods exist? And can you bypass them? In this guide, we’ll cover everything that you need to know about life insurance waiting periods. In addition to that, we’ll also discuss options that may allow you to reduce or avoid it entirely.
Understanding The Life Insurance Waiting Period
Most insurance policies require you to go through a waiting period, typically lasting two years. This is the period of time that needs to pass before your life insurance policy can pay out your death benefit.
However, this doesn’t mean that your loved ones will receive nothing from your policy if you die within the waiting period. Most insurance policies will refund the premiums you paid until your death. Sometimes, they may also provide interest on top of your premium refund.
Some life insurance companies treat their waiting period as a period of contestability. If you die within the waiting period, your beneficiaries can still make a claim and receive the death benefit. However, this claim will be put through more scrutiny, and the insurer may deny it if they find any sign of fraud.
Why Does Life Insurance Have A Waiting Period?
In this section, we’ll cover two reasons why many insurance companies implement a waiting period on their policy.
Prevent Insurance Fraud
One of the primary reasons for implementing a waiting period is to prevent insurance fraud.
If you die from pre-existing health conditions that you fail to disclose on your application’s medical questions within the first two years, the insurance company has a right to conduct an investigation. If they find that you suffered from this health condition before your application, they may deny your family’s death benefits claim. This lack of disclosure, to them, constitutes fraud.
Another important reason to implement the waiting period is to prevent policyholders from buying a policy and then committing suicide. While this may be tragic, it’s not unheard of in the insurance world, which means insurers need to protect themselves from such cases.
Encourage Consumers To Buy Insurance Earlier
Another reason insurers have a waiting period is to incentivize consumers to get coverage early. By requiring customers to wait before their protection fully activates, they will be encouraged to get insured when they’re young and in good health.
Factors That Influence Your Waiting Period
Most policies require you to wait for two years, but here are two factors that may change the wait period.
The Type Of Life Insurance
The two-year wait is standard for most term life insurance policies is two years, but there are types of insurance that will require longer or shorter waiting periods. For example, guaranteed acceptance or guaranteed issue life insurance has no wait as well as no health questions.
The Life Insurance Coverage Amount
The value of your policy may influence how long you need to wait. An especially large permanent life insurance policy may require you to wait longer. Conversely, a life insurance policy with smaller coverage may feature shorter – or even nonexistent – waiting periods.
What Happens If I Die During The Waiting Period?
Depending on your insurer, there are several possibilities. With most life insurance policies, your beneficiaries may receive all the premiums you paid up until your death as compensation. Some companies also pay out a small amount of interest in addition to your premium refund.
If the life insurance company implements a period of contestability, then your family can still make a claim for your death benefit. However, the insurer will conduct a more thorough investigation to ensure that this claim isn’t a case of insurance fraud. If the insurance company finds no sign of fraud, your life insurance coverage will be paid out.
Because the definition of a waiting period may differ between insurers, it’s a good idea to review your life insurance policy before signing up. You also need to ensure that your family knows about the terms of your policy to make the eventual claims process smoother.
Can I Bypass The Waiting Period?
Generally, you can’t bypass a policy’s required waiting periods. However, you can seek out an alternative life insurance policy with no wait. Without any waiting periods, your protection will fully activate the day that your policy is approved.
Many insurers offer guaranteed issue life insurance (often aimed at seniors and people with serious health issues) which doesn’t require a medical exam or wait period. As a trade-off for the relaxed health requirements, a guaranteed issue life insurance policy usually comes with higher insurance quotes and lower death benefits.
Instead of no wait, some guaranteed issue life insurance policies feature graded death benefits. With a graded death benefit, the policy pays part of your death benefit if you die during the waiting period. If you die after the period has passed, your family will receive the full death benefit.
However, one thing to keep in mind is that a guaranteed issue policy also has exceptions. Generally, the insurer will refuse to pay out if you participate in high-risk activities, such as extreme sports or excessive use of drugs and alcohol.
With most types of life insurance, you’ll be required to go through a waiting period before your protection fully activates. This period may vary depending on your type of insurance. While this period cannot be bypassed, you can opt to buy insurance with no waiting period.
If you need advice on finding an insurance policy without a lengthy wait period, Wesley LLC is here to help! Our professional team can assist you in choosing the best-valued life insurance policies with shorter waiting periods. Contact us today for more information!