disability income insurance (elimination/benefit period)
Most people insure their car and their house, but their biggest asset is their ability to earn. If illness or injury stops you working for months or years, the mortgage and groceries do not pause. Disability income insurance replaces a portion of your paycheck while you are unable to work, so a long absence does not wipe out the family.
Two features define how it works. The elimination period (or waiting period) is how long you must be disabled before benefits start — like a deductible measured in time, often 30, 90, or 180 days; a longer wait means a cheaper policy because short, self-resolving disabilities never trigger a claim. The benefit period is how long payments can continue once they start — say 2 years, 5 years, or to age 65. So a policy might pay 60% of your salary, after a 90-day elimination period, for up to 5 years. The benefit is usually capped below full pay (to keep an incentive to return to work) and depends on the policy's definition of 'disabled' — own occupation (you cannot do your specific job) is more generous than any occupation (you cannot do any job).
For actuaries, disability income is a morbidity product with two moving parts: the incidence of becoming disabled, and the continuance — how long claimants stay on claim before recovering, dying, retiring, or reaching the end of the benefit period. Both are sensitive to the policy definition and to the economy: claims rise and last longer in recessions. That sensitivity, plus the long benefit periods, makes pricing and reserving for disability genuinely hard, and the elimination and benefit periods are the main levers controlling cost.
An accountant earning 100,000 buys disability income paying 60% of salary, with a 90-day elimination period and benefits to age 65. She herniates a disc and cannot work for eight months. For the first 90 days she receives nothing (the elimination period); from day 91 the policy pays 60,000 a year (5,000 a month) until she recovers and returns to work.
Elimination period = the wait before benefits start; benefit period = how long they last.
The policy's definition of 'disabled' matters as much as the dollar amount. 'Own occupation' coverage pays if you cannot do your own job even if you could do another; 'any occupation' pays only if you cannot do any reasonable job — a much harder bar and a cheaper, less protective policy.