What Does Probationary Period Mean?
A probationary period is the time before an insurance policy can effectively cover a risk. This is usually between the approval of the insurance application and the actual date the coverage begins. This is used to reduce cases of fraud or prevent preexisting illnesses losses where applicants purchase insurance knowing that they will need to make a claim in the near future. If the insurer allowed these types of claims, then that would defeat the purpose of insurance and not be profitable for the insurance companies.
A probationary period effectively stipulates that benefits will not be paid or coverage will not be offered for events happening before a specified time period has passed. For example, if the probationary period is 30 days on a health insurance policy, the insured would not be able to claim any medical expenses until the 30-day probationary period has passed.
Many different types of policies can have a probationary period. They are sometimes found on home and auto policies, but that is very rare. Most commonly, probationary periods can be found in disability policies and in group benefits health insurance policies. Something similar can also be found in maternity insurance policies where the insured has to have held the policy and paid premiums for a certain amount of time before maternity-related expenses like checkups or childbirth are covered.
Insuranceopedia Explains Probationary Period
Probationary periods can be enforced for any type of insurance policy, but are most common on short-term disability and group benefits policies.
For private disability policies, the probationary period is usually 15 to 30 days. This delay allows the insurer to review the application and verify the information the applicant has provided. Coverage begins after the contents of the application are vetted, and coverage is denied if there is any proof of fraud. Probationary periods can also be used to stipulate that benefits are not payable for any sickness commencing during a specified time period after the inception date of the policy.
For these types of policies, it also serves to exclude claims that result from any preexisting diseases or conditions. It would not be a profitable business practice for insurers to allow people to purchase insurance right when they are about to make a claim and enjoy the benefits of coverage without having paid the necessary premiums.
Another context in which probationary periods are often used is in group benefits insurance. On a group benefits plan, new hires are not eligible for coverage until after the probationary period has passed.
The probationary period should not be confused with the elimination period, during which the insured pays out of pocket before the insurance starts paying. In essence, an elimination period serves as sort of deductible while a probationary period serves to exclude coverage until after a certain time.