Arizona Life and Health Practice Exam

Which of the following best describes the purpose of an elimination period in a disability policy?

1. To determine policy premiums

2. To limit the duration of coverage

3. To reduce the potential for fraud

4. To establish when benefits begin

The correct answer is: To establish when benefits begin

The elimination period in a disability policy serves to establish when benefits begin after a disability occurs. This waiting period is the time that must pass after the onset of a disability before the policy starts to pay out benefits. It is designed to allow for initial recovery time and helps ensure that benefits are only provided for longer-term disabilities. The elimination period can also help limit minor claims and encourage policyholders to return to work if possible, thus minimizing the risk for the insurer and maintaining the policy's overall affordability. In summary, the elimination period effectively sets a clear boundary on when the insurer is liable to start providing benefits, which is a critical component of managing risk in disability insurance policies.