In Finance, what is a Waiting Period?

The waiting period is the amount of time that passes between the request or order for a specific action to occur, and when that action actually takes place. Periods of this type are found in many areas of business and finance, especially in regard to insurance coverage and in various investing situations. Depending on the scenario, a waiting period may be referred to as a quiet period, elimination period, or a cooling-off period.

One example of the waiting period has to do with the filing of documents with a government regulatory agency. In many nations, specific laws determine how a company goes about structuring and announcing an initial public offering, or IPO. Typically, the company must file its intention with the appropriate government agency, obtain approval for issuing the offering, and then observe a period of time before it begins to make announcements to the general public. This type of waiting period can be as long as three calendar months.

With insurance claims, the waiting period has to do with the time that occurs from the filing of the claim to the point where the insurance provider settles the claim, either by paying or rejecting that claim. Most types of insurance coverage will provide specifics provisions regarding the filing of claims, including how long the insured party may have to wait for the claim to be settled. It is not unusual for policies that carry provisions for longer elimination or waiting periods to offer slight discounts on the monthly premiums.

One of the benefits of the waiting period is that it allows all parties involved in the deal to investigate the claims or provisions of the proposed action in greater detail. In the event of a business filing documents related to a proposed IPO, the waiting period gives the government agency processing the paperwork to verify all the data provided, plus conduct some independent investigation into the financial stability of the company. This helps to protect potential investors from participating in a stock offering that is misrepresented in terms of current market value.

Insurance companies also benefit from the use of an elimination or waiting period, since it provides time to verify the information relating to the claim and determine if a payment to the insured party is in order, according to the terms and conditions of the insurance policy. Doing so helps to minimize the possibility of insurance fraud, which in turn saves the insurance company a great deal of money. At the same time, this use of the elimination period indirectly aids in keeping insurance premiums lower than they would be otherwise.