Why are waiting periods included in health insurance policies?

Waiting periods are included in health insurance policies primarily to limit the insurer's risk associated with pre-existing conditions. This practice is significant because it helps insurance companies manage their exposure to claims that may arise from medical issues that existed before the policy was purchased.

Without waiting periods, individuals might be incentivized to purchase health insurance only after they have received a diagnosis or treatment, leading to a phenomenon known as "adverse selection." In this scenario, insurers would face a higher volume of claims from individuals who are aware of their existing health issues, potentially leading to financial instability for the insurance company. By implementing waiting periods, insurers can mitigate this risk, allowing them to offer coverage to a broader pool of applicants, including those who are healthier and may use fewer medical services.

Furthermore, waiting periods encourage policyholders to make decisions about their healthcare and insurance in a more balanced manner, rather than just reacting to immediate health needs. This approach ultimately supports the sustainability of health insurance systems and helps keep premium costs more stable and predictable for all insured individuals.