Final answer:
The elimination period in a disability income policy acts as a deductible, representing the time a policyholder must wait before benefit payments begin. It is similar to a deductible in that it requires the insured to bear some initial costs, thereby reducing moral hazard.
Step-by-step explanation:
In the context of a disability income policy, the clause that acts as a deductible is the elimination period. This elimination period is akin to a deductible in that it is the time frame during which the policyholder must wait after becoming disabled before they can start receiving benefits. Similar to how a deductible requires the policyholder to cover costs up to a certain amount before insurance covers the rest, the elimination period requires the policyholder to wait and potentially cover their costs before the benefits kick in.
Deductibles, copayments, and coinsurance all serve as measures to reduce moral hazard, which can occur when an individual engages in riskier behavior because they are insured. By having to bear some of the costs, either through an elimination period or a traditional deductible, the insured is motivated to act in a more risk-averse manner. This system is an essential aspect of the insurance industry, ensuring that the balance between risk and coverage is maintained.