II. POLICY, Provisions, Clauses and Riders

Reinstatement Provision

If the premium is not paid by the end of the grace period, the policy lapses. The reinstatement provision lets a policyowner reinstate a lapsed policy within a certain period. The normal reinstatement period is three years from the date of lapse. To reinstate a policy, the policyowner applies for it, pays past-due premiums with interest, and gives proof of insurability. The insurer has up to 45 days to reject the application for reinstatement. If the insurer does nothing, reinstatement is automatic. The insurer lets the policyowner know when the policy is in effect again.

Grace Period Provision

Insurers cancel a policy if the premium is not paid. The grace period provision gives the policyowner some time after the due date to pay the premium. The period depends on how often the premium is due: 7 days for weekly premiums 10 days for monthly premiums 31 days for all other payment modes The mode of premium payment can be weekly, monthly, quarterly, semiannually, annually, or some other frequency. Some states require a 31-day grace period in every case. This is true with products designed for older consumers (such as long-term care insurance and Medicare supplement insurance). The insurer pays valid claims that arise during the grace period. It can deduct the premium due from the claim payment.

Transplant Coverage

Medical expense policies often cover all or a portion of the cost of organ transplants. Coverage may be provided through a standard policy provision or as a rider added to the policy.

Other Insurance in This Insurer

Most health insurance policies coordinate coverage to limit total coverage to no more than the loss. This prevents overinsurance. The other insurance in this insurer provision applies when an insured has two or more related policies with a single insurer. The total coverage that the insurer underwrites for one person can be limited to a certain amount. Then the number of policies the insurer issued for this person does not matter because any excess insurance is void. Any premiums charged for coverage over this limit are returned to the policyowner.

Claim Forms Provision

Once the insurer gets a notice of claim from the insured, the claim forms provision requires the insurer to give claim forms to the insured within 15 days. Otherwise, the insured can instead submit a written statement describing how the loss occurred, the nature of the loss, and the medical expenses.

Common Policy Exclusions

Policy exclusions are conditions that are not covered. The insurer denies claims related to these conditions. Health insurance policies usually do not cover: self-inflicted injuries illness or injury from war and military actions sickness or injury while on active duty in the armed forces cosmetic surgery infertility treatments noncommercial airline travel injuries or sickness covered by workers' compensation treatment in a government hospital losses incurred while committing a felony

Entire Contract Provision

The entire contract provision states that the policy, riders, and endorsements form the contract between the insurance company and the policyowner. Agreements beyond the contract are not part of it.

Relation of Earnings to Insurance

The relation of earnings to insurance provision applies to disability income insurance policies. It avoids overinsurance by reducing the policy's benefit amount if the disabled insured receives more income from the insurance benefit than from working. This can happen when an insured accepts a lower-paying job after the policy has been issued. It can also arise when the insured has additional sources of disability income insurance. In either case, policy benefits will be reduced proportionally. Any premiums paid for excess coverage are returned to the insured.

Other Common Policy Provisions

Health insurance policies have other provisions that define their features, benefits, and limitations. 1. Free Look (Right to Examine) Insured can return the policy within 10 (sometimes 20, or 30) days of delivery for a full refund of premium and fees. 2. Insuring Clause Insurer promises to pay a benefit if a certain event occurs. 3. Consideration Clause Specifies what the parties exchange to form the insurance contract. 4. Probationary Period In individual policy, sets the time that must pass between the policy's effective date and the time when losses are covered. In group policy, sets the time that must pass between person's hire date and the time when losses are covered. 5. Elimination Period Each time a loss occurs, sets the time that must pass before benefits begin. 6. Renewability States the insurer's rights to increase premiums or cancel coverage, and the insured's right to renew coverage. 7. Automatic Increase Option Increases benefits by a specified amount to keep pace with inflation. 8. Benefit Integration Integrates an insurer's benefits with similar benefits the insured gets from other sources to prevent overinsurance and minimize premiums. 9. Beneficiary Benefits Insured names a beneficiary to receive claims payments that would otherwise be paid to the insured, in case the insured dies before the claim is paid. 10. Transplant Coverage Insurer pays for organ transplants.

12 Mandatory/Required Provisions

The National Association of Insurance Commissioners (NAIC) developed 12 standard provisions for health insurance policies. States require insurers to include these provisions in their policies. 1. Entire Contract Specifies that a policy, riders, and endorsements make up the contract between the insurer and insured. 2. Time Limit on Certain Defenses Prevents the insurer from voiding a policy after 2 or 3 years from issue due to a misrepresentation. 3. Grace Period Gives the insured more time—7, 10, or 31 days—after a premium is due to pay it and keep a policy from lapsing. 4. Reinstatement Lets the insured put a policy back in force after it lapses, usually within 3 years of lapse. 5. Physical Examination and Autopsy Lets the insurer order a physical exam or autopsy of the insured following a claim. 6. Legal Actions Permits the insured to sue the insurer no earlier than 60 days and no later than 3 years after a loss. 7. Change of Beneficiary Lets the insured change the beneficiary for a death benefit. (Irrevocable beneficiary must consent.) 8. Payment of Claims Tells the insurer to whom it must pay a claim. 9. Notice of Claim Makes the insured notify the insurer of a loss within 20 days, or as soon as possible. 10. Claims Form Makes the insurer give the insured claim forms within 15 days of notice of claim. 11. Proof of Loss Entitles the insurer to written proof of loss within 90 days of loss. 12. Time of Payment of Claims Makes the insurer pay a claim immediately after proof of loss.

Automatic Increase Option

The automatic increase option increases benefits by a specified amount to keep pace with inflation. (This is like the cost of living adjustment rider in disability income and long-term care policies.) Benefits may increase as often as every year.

Change of Occupation

The change of occupation provision covers two situations. First, when an insured changes to an occupation that is more hazardous, the insurer's risk increases. This provision lets the insurer reduce benefits. Second, if the insured changes to a less hazardous occupation, this provision requires the insurer to reduce the premium.

Notice of Claim Provision

The notice of claim provision requires the insured to notify the insurer within 20 days after a loss. Sometimes the insured cannot notify the insurer within 20 days. So, the provision allows the insured to give this notice as soon as reasonably possible. The notice of claim tells the insurer that the insured intends to file a claim. The insurer sends the insured the necessary claim forms.

Optionally Renewable

The optionally renewable provision gives the insurer the right to cancel the policy on a certain date. It also lets the insurer increase the premium for those in the optionally renewable class. Policies are subject to cancellation or premium increases on their anniversary date.

Other Insurance with Other Insurers

The other insurance with other insurers provision applies to coverage with multiple insurers when the primary insurer knows of them. Often the insured is covered by a state's workers' compensation program. This provision prorates each insurer's share of the total benefit due. This provision covers losses on other than an expense-incurred basis. Under this provision, the insurer must return premiums that are more than the amount associated with its proportion of prorated benefits.

Change of Beneficiary Provision

The owner of a policy with a death benefit must designate a beneficiary. The change of beneficiary provision gives the policyowner the right to change the beneficiary. However, the owner can exercise this right only if the designation is revocable. If the designation is irrevocable, the policyowner can change the beneficiary only if the beneficiary agrees to the change

Proof of Loss

Under the proof of loss provision, the insured must give the insurer written proof of loss within 90 days. The insurer can extend this period under certain circumstances. In the case of disability insurance, the insured may need to give ongoing proof of loss to continue getting benefits.

Cancellable

A cancellable policy lets the insurer cancel the policy at any time by giving written notice. The insurer must refund any advance premiums paid before canceling the policy. Cancellable policies also allow for premium increases. A type of cancellable, nonrenewable policy is the term health policy. This type of health insurance covers only limited periods, such as six months. People often buy term health policies for periods between life events. For instance, this policy can be useful after a young person graduates from college and before he or she becomes employed (at which point, he or she may be covered by an employer's group health plan). Once a term health policy has ended, an insured who wants a new policy must reapply. There is no guarantee that the policy will be issued.

Conformity with State Statutes

A conformity with state statutes provision reconciles any provisions in the policy that do not comply with the laws of the state where the insured lives and the policy is issued. Non-compliant provisions are automatically changed to meet the state's minimum requirements.

Guaranteed Renewable

A guaranteed renewable policy assures the policyowner that the insurer will not cancel the policy, although it may increase premiums. If the insurer increases premiums, it must raise them for all policies in that class issued in the state. A guaranteed renewable provision is standard in medical expense insurance policies and long-term care policies. It is also standard on most disability income policies. Those issued to the lowest-risk policyowners typically include the noncancellable provision. A policy is usually guaranteed renewable only until the insured reaches age 65.

Consideration Clause

A health insurance policy is a contract. It requires an offer, acceptance, and consideration. The consideration clause states the consideration that the parties exchange. The applicant's consideration is the application and the first premium payment. The insurance company's consideration is the promise to pay a benefit for a covered loss.

Pre-Existing Conditions

A pre-existing condition is a health condition that existed before an insurance policy was issued. A pre-existing condition is a sickness or physical condition for which: medical advice or treatment was recommended by or received from a physician or symptoms existed that would cause a careful person to seek diagnosis, care, or treatment A pre-existing condition exclusion denies coverage for loss related to the pre-existing condition if the loss arose within a certain time (usually 12 to 24 months) after policy issue. Pre-existing condition exclusions were once common in health insurance policies to help insurers control costs. They are no longer used except in limited circumstances. They still appear in disability income and long-term care insurance policies. The Patient Protection and Affordable Care Act (PPACA, or ACA) ended the use of pre-existing condition exclusions in medical expense insurance. Since 2014, medical expense insurers cannot deny coverage or charge a higher premium because of a pre-existing condition. There is an exception for plans that have "grandfather" status. These plans took effect before March 23, 2010, and have remained substantially unchanged since. Insurers cannot deny or cancel coverage for children because of a pre-existing condition.

Waiver of Premium

A waiver of premium provision states that the insurer will waive the premium if the insured is disabled. The insurance remains in force.

Beneficiary Benefits

Accidental death and dismemberment (AD&D) insurance requires a beneficiary designation. If the insured dies in an accident, the beneficiary gets the benefits. Some forms of medical expense insurance also require a beneficiary designation. If the insured dies before the claim is paid, the beneficiary gets the payments that would otherwise be paid to the insured.

Elimination Period

An elimination period is the period after a loss before benefits begin. Elimination periods usually appear in disability insurance and long-term care insurance policies. Like deductibles, they reduce or avoid small claims.

Provisions for Renewability

Health insurance policies cover a specified period of time, typically one year. Coverage may be renewed. A policy's renewability provision allows the insurer to increase premiums or cancel coverage. It also states the policyowner's right to renew coverage. Renewal provisions can make a policy: noncancellable guaranteed renewable conditionally renewable optionally renewable cancellable

Conditionally Renewable

In a conditionally renewable health insurance policy guarantees that the policyowner can renew coverage. However, the policyowner must meet certain conditions. These conditions must be related to the insured reaching a certain age or losing employment or membership in an association that provides the health coverage. These conditions cannot be associated with the insured's health. With a conditionally renewable policy, the insurer cannot cancel coverage if the insured meets the conditions necessary for renewal. However, the insurer can increase premiums.

Probationary Period

Individual and group health insurance policies can have a probationary period. In an individual policy, a probationary period is the time that must pass between the policy's effective date and the time when losses are covered. It helps the insurer avoid adverse selection. So, probationary periods usually exclude coverage of losses related to illness. Accident-related losses, however, are unforeseen and do not invite adverse selection. Therefore, accidents are covered as soon as the policy is issued. In group insurance, the probationary period is the time the employee must be employed before being eligible for insurance benefits. The employer sets the period.

Prohibited Policy Provisions

Most states do not allow insurers from including a contract provision that: limits the period for filing a lawsuit against the insurance company to less than one year after a loss makes a producer's acts or representations binding on the insured makes the producer also the insured

Benefit Integration

Some health policies integrate the benefits they pay with similar benefits the insured gets from other sources. This is common with disability income policies, which often specify the total benefit amount (from all sources) that the insured may receive. This amount is less than 100 percent of the insured's gross income and prevents overinsurance.

11 Optional Provisions

The NAIC has established 11 optional provisions that can be added to a health insurance policy. These provisions protect the insurer. ProvisionWhat It Does 1. Change of Occupation Reduces benefits if insured takes a more dangerous occupation. Reduces the premium if the insured takes a less dangerous occupation. 2. Misstatement of Age or Sex Adjusts benefits for what the premium would buy at the insured's correct age and sex when age or sex was misstated in application. 3. Other Insurance in This Insurer Limits total coverage from a single insurer when insured has two or more related policies with the same insurer. 4. Insurance with Other Insurer Insurer can prorate its benefit for a loss if another insurer covers the same loss. 5. Other Insurance with Other Insurers When more than one insurer covers a loss, allocates each insurer's share of the total benefit due. 6. Relation of Earnings to Insurance Reduces the disability income policy's income benefit amount if it exceeds the insured's wages. 7. Unpaid Premium Deducts an unpaid premium from the claim payment. 8. Cancellation Insurer can cancel the policy with 45 days' advance notice, or with 10 days' notice if premium was not paid. 9. Conformity with State Statutes Any non-compliant provisions automatically conform to the minimum requirements of the insured's state. 10. Illegal Occupation Insurer can deny a claim for loss incurred from the insured's illegal activity. 11. Intoxicants and Narcotics Insurer can deny a claim for loss incurred from the insured's intoxication or illegal use of narcotic drugs.

Cancellation

The cancellation provision lets an insurer cancel the policy at any time with 45 days' notice. The 45-day notice is also necessary if the insurer is not going to renew the policy or changes the premium. If the insurer is cancelling the policy because the insured did not pay the premium, the insurer must give ten days' notice to the insured. The insurer must still pay a valid claim that the insured submitted before the policy was cancelled. If the insured paid a premium that was not due, the insurer must return it.

Free Look (Right to Examine)

The free-look provision (or the right to examine provision) lets policyowners return the policy to the insurer within a certain time and receive a full refund of all premiums and fees paid. Health insurance policies normally allow the policyowner a ten-day free-look period. Depending on the type of coverage and the policyowner's age and state of residence, that period can be 20 or 30 days. The period begins when the policy is delivered to the policyowner.

Illegal Occupation

The illegal occupation provision lets the insurer deny a claim that arises from the insured's participation in an illegal activity.

Insurance with Other Insurer

The insurance with other insurer provision addresses a situation in which an insured: has coverage for the same risk and expenses with another insurer and has not notified this insurer of the other existing coverage This provision lets an insurer prorate the amount of benefit it pays for an expense-covered loss if another insurer covers losses from the same event. It keeps the insured from receiving a benefit that is more than the loss.

Noncancellable

The insurer of a noncancellable health insurance policy cannot cancel the policy or increase the premium. Noncancellable policies present the greatest risk to the insurer, so this renewal provision is more expensive than others. Noncancellable provisions are common in disability income policies issued to those in low-risk white-collar and professional occupations. Most policies limit the policy's noncancellability to age 65 (or full retirement age). Noncancellable provisions are rare in medical expense policies.

Insuring Clause

The insuring clause is the insurer's promise to pay a benefit if a certain event occurs. The insuring clause: describes the type and scope of coverage defines terms used in the policy states the conditions under which the policy will pay a benefit

Intoxicants and Narcotics

The intoxicants and narcotics provision lets the insurer deny a claim that arises from the insured's intoxication or illegal use of narcotic drugs. It does not exclude a claim that arises from the insured's use of a prescribed narcotic.

Legal Actions Provision

The legal actions provision sets the period during which the insured can take legal action against the insurer to dispute its decision on a claim. The provision prevents the insured from taking legal action against the insurer for at least 60 days after giving proof of loss to the insurer. The insured cannot take legal action against the insurer more than two years after proof of loss.

Misstatement of Age or Sex

The misstatement of age or sex provision applies when an insured misstates his or her age or sex on the insurance application. Any benefits will be paid according to those the premium would have bought at the insured's actual age and for the insured's actual sex. In some states, the misstatement of age or sex provision is not an optional provision, but a mandatory one.

Payment of Claims Provision

The payment of claims provision states how claims are paid. If the insured dies, the insurer pays the beneficiary. If the insured did not specify a beneficiary, the insurer pays the insured's estate.

Physical Examination and Autopsy Provision

The physical examination and autopsy provision gives the insurer the right to have the insured take a physical exam when a claim has been filed. The insurer pays for this exam. An exam is common with disability income claims. If the claim arises from the insured's death, the insurer has the right to order an autopsy to determine the cause of death. The insurer pays for the autopsy.

Time Limit on Certain Defenses Provision

The time limit on certain defenses provision is like the incontestability clause in life insurance. It limits the time an insurer can void a policy or deny a claim for material misrepresentations on the application. Most states limit the contestability period to two years. Once a policy is in effect for two years, an insurer cannot void it or deny a claim because of misrepresentation on the application. Some states limit the period to three years.

Time of Payment of Claims Provision

The time of payment of claims provision compels the insurer to pay claims immediately after receiving proof of loss. The insurer will pay benefits for disability claims at least monthly. States differ in how they define an immediate payment after proof of loss. For some, it is payment within 60 days. For others, it is payment within 45 days. An insurer that does not pay a valid claim within a reasonable time must also pay interest on the amount due.

Unpaid Premium

The unpaid premium provision addresses any premiums the insured owes before the claim. The insurer can deduct the amount of unpaid premium from the benefit paid to the insured.