California Life and Health Insurance Practice Exam

In health insurance, what is the purpose of a waiting period?

1. To delay benefits until the policy is in force

2. To encourage timely payment of premiums

3. To assess the health condition of the insured

4. To reduce insurance fraud

The correct answer is: To delay benefits until the policy is in force

The purpose of a waiting period in health insurance is primarily to delay the benefits until the policy is officially in force. This means that after a policyholder has applied for insurance and it is approved, there will be a specified duration during which they cannot claim certain benefits. Waiting periods are often instituted to mitigate risks associated with moral hazard and to ensure that individuals do not sign up for health insurance solely when they are in need of immediate medical attention. This mechanism helps insurance companies manage their risk and maintain stable premium costs for all policyholders. It also serves to prevent individuals from taking advantage of the insurance system by enrolling only when they anticipate needing healthcare services. In this way, the waiting period acts as a safeguard for the insurer while allowing them to provide coverage in a more sustainable manner.