Which configuration would have the highest premium for a disability income policy: 30 day waiting period with 5 year benefit period, 60 day waiting period with 2 year benefit period, 90 day waiting period with 1 year benefit period, or 14 day waiting period with 10 year benefit period?

• A. 30 day waiting period with 5 year benefit period
• B. 60 day waiting period with 2 year benefit period
• C. 90 day waiting period with 1 year benefit period
• D. 14 day waiting period with 10 year benefit period

Answer: (D)

Disability income policy premiums reflect the insurer’s risk exposure: how soon benefits can start and how long they’ll be paid. A shorter elimination (waiting) period means benefits can begin quickly after a disability, increasing the chance of a payout. A longer benefit period means benefits can be paid for many years, increasing the total amount the insurer might have to pay. The configuration with the shortest waiting period (14 days) and the longest benefit period (10 years) combines the greatest likelihood and the longest duration of payout, so it has the highest premium. The other options either delay benefits longer or limit how long benefits are paid, which lowers the insurer’s risk and the premium.