What does the ‘waiting period’ serve to accomplish in an insurance contract?

The 'waiting period' in an insurance contract is primarily designed to establish when the policyholder's coverage begins. This period serves as a timeframe before the benefits of the policy take effect, which allows the insurer to manage risk and reduce adverse selection. By implementing a waiting period, insurers can ensure that policyholders are serious about their coverage and not just seeking immediate benefits after realizing they might need to make claims.

In various types of insurance, such as health or disability insurance, waiting periods can also help to mitigate the likelihood of claims being filed for pre-existing conditions or recent incidents. This aspect protects the insurer against sudden, unexpected loss and ensures that coverage is genuinely in place for ongoing needs rather than spontaneous claims.

Although there are other functions that might seem plausible, such as preventing fraud or limiting the frequency of claims, these are not the primary purpose of the waiting period. The main intent is to clearly delineate when coverage responsibility begins for both the insurer and the policyholder.