California Life and Health Insurance Practice Exam

The elimination period in a disability income policy serves the same purpose as which element in a medical expense policy?

1. Premium

2. Co-payment

3. Deductible

4. Coverage limit

The correct answer is: Deductible

The elimination period in a disability income policy functions similarly to a deductible in a medical expense policy because both represent a waiting period before benefits commence. In a disability income policy, the elimination period is the duration the insured must wait after becoming disabled before receiving benefits. This period helps to mitigate small claims and reduces the insurance company's costs. Similarly, in a medical expense policy, the deductible is the amount the insured must pay out-of-pocket before the insurance company begins to share the costs of covered services. Both concepts emphasize the idea of sharing the financial responsibility between the insured and the insurance company, incentivizing the insured to seek benefits only when necessary and allowing the insurer to reduce claims costs for minor or short-term issues. Other options, such as premium, co-payment, and coverage limit, do not relate in the same way. The premium is the cost of the policy, while the co-payment is a specified amount paid for certain services, and the coverage limit caps the amount the policy will pay. None of these share the concept of a waiting period before coverage starts, which is central to both the elimination period and the deductible.