Updated on October 4, 2023
The term deferment period is important in determining the coverage period for an insurance policy. The meaning of this term and related details are mentioned below.
Meaning of Deferment Period
A Deferment Period in insurance refers to a specific waiting period during which certain policy benefits, typically related to health or disability insurance, are not payable even if a valid claim is submitted. This waiting period serves as a waiting or qualifying period before the policyholder becomes eligible to receive the benefits. During this period, the policyholder must bear the financial burden of any covered event or condition.
Why is the deferment period important?
Risk Management – They help insurance companies manage the risk associated with potential adverse selection, ensuring that policyholders do not exploit the policy by claiming benefits for pre-existing conditions.
Cost Control – By imposing a waiting period, insurance companies can offer policies at more affordable premiums since they anticipate that policyholders will bear initial costs during the deferment period.
Policy Customization – Deferment periods offer policyholders flexibility in designing insurance plans that align with their specific needs and financial capabilities.
Understanding the deferment period in detail
Purpose – Deferment periods prevent immediate claims for pre-existing conditions, managing the risk of adverse selection.
Health Insurance – They are common in health insurance, like a 30-day wait before claiming medical expenses.
Disability Insurance – In short-term disability policies, a deferment period (e.g., 90 days) delays benefit eligibility.
Premium Impact – Longer deferment periods often mean lower premiums.
Customization – Policyholders can choose deferment periods based on their preferences and budget.
Exemptions – Some policies exempt specific conditions or accidents from the waiting period, allowing immediate claims.