Final answer:
A disability policy with a longer elimination period typically charges lower premiums than a policy with a short elimination period.
Step-by-step explanation:
A disability policy with a longer elimination period typically charges lower premiums than a policy with a short elimination period. This is true.
Insurance companies base their premiums on the level of risk associated with the policy. A longer elimination period means that the policyholder needs to wait longer before receiving benefits, which reduces the likelihood of a claim and lowers the risk for the insurance company. As a result, they can offer lower premiums for policies with longer elimination periods.
For example, let's say there are two disability policies, one with a 30-day elimination period and another with a 60-day elimination period. The policy with the 30-day elimination period will have higher premiums because the insurance company assumes there is a higher chance of a claim being made within a shorter time frame.