What is the purpose of a ‘waiting period’ in an insurance policy?

The purpose of a ‘waiting period’ in an insurance policy is to define the time before coverage begins. This period acts as a delay between the start date of the policy and the time when the insured is eligible to receive some or all benefits. It is commonly used in various types of insurance, such as health insurance and disability insurance, to prevent moral hazard, where individuals may wait to buy insurance until they are ill or injured. By implementing a waiting period, insurers can reduce the potential for immediate claims and ensure that policyholders remain committed to their coverage over time.

In contrast, limiting access to benefits, establishing a grace period for payment, or allowing for policy upgrades does not accurately represent the fundamental nature of a waiting period. These aspects serve different purposes in insurance policies and do not describe the primary function of a waiting period, which specifically pertains to the timing of when coverage takes effect.