Understanding Waiting Periods in Insurance

Insurance policies often include waiting periods that affect when you can make claims or receive benefits. These periods exist for good reasons but can catch people out if not understood. Knowing how waiting periods work helps you plan your protection and avoid surprises when you need to claim.

Waiting periods vary by policy type and can be managed with proper planning.

Types Of Waiting Periods

Stand-down periods apply when you first take out a policy. During this period, you have cover but cannot claim for certain conditions. This prevents people from taking out insurance only when they know they will need it.

Benefit waiting periods in income protection determine how long you must be unable to work before payments begin. You choose this period when taking out the policy.

Qualification periods determine when new benefits become available, such as mental health cover or maternity benefits.

Stand-Down Periods For New Policies

When you first take out health insurance, there is often a three-month stand-down before you can claim for most conditions. Emergency treatment and accidents may be covered immediately.

Life insurance typically has no stand-down except for suicide clauses in the first year or two. Death from natural causes is usually covered immediately.

Trauma insurance may have a stand-down period, typically 90 days, before the full policy benefits apply.

Income Protection Waiting Periods

Income protection has a benefit waiting period you choose, typically 30, 60, or 90 days. This is how long you must be unable to work before payments begin.

Shorter waiting periods cost more because you receive benefits sooner. Longer waiting periods cost less because you fund the early period yourself.

Choose a waiting period based on how long you could manage without income. If you have substantial sick leave or savings, you can afford a longer waiting period and save on premiums.

Why Insurers Use Waiting Periods

Waiting periods prevent adverse selection, where people only buy insurance when they know they will need it. Without stand-downs, people could take out health insurance the day before planned surgery.

Benefit waiting periods in income protection align costs with risk. Short-term illnesses are common and manageable. Insurance focuses on longer-term inability to work.

Waiting periods help keep premiums affordable by excluding the most predictable claims.

Managing Waiting Periods

Take out insurance before you need it. Once stand-down periods pass, you have coverage in place for unexpected events.

Build savings or emergency funds to cover income protection waiting periods. Sick leave, savings, or ACC payments bridge the gap until insurance kicks in.

Understand your policy's waiting periods before you need to claim. Surprises at claim time add stress to already difficult situations.

Waiting Periods And Pre-Existing Conditions

Waiting periods do not turn pre-existing conditions into covered conditions. A condition you had before taking out insurance remains excluded after the waiting period.

What waiting periods do is prevent new conditions from being claimed immediately. Conditions that develop after you take out insurance are covered once the waiting period passes.

Disclosure is still essential. Do not assume that waiting for a stand-down period covers conditions you knew about when applying.

Claiming During Waiting Periods

If you need to claim during a stand-down period, your claim will likely be declined. However, being declined during the stand-down does not necessarily affect coverage for other conditions.

For income protection, the waiting period starts when you stop working due to illness or injury. If you return to work before the waiting period ends, the clock resets if you become ill again.

Keep documentation from the start of any illness. You may need to prove when your condition began if there are questions about waiting period timing.

Choosing Appropriate Waiting Periods

Balance cost savings against your ability to self-fund the waiting period. A 90-day waiting period saves premiums but requires three months of alternative income.

Consider your resources: sick leave, emergency fund, partner's income, and any other support during the waiting period.

Do not choose the longest waiting period just to save money if you would struggle to manage without income during that time.