Insurance Exam CH 11 Individual Policy Provisions

Relationship of Earnings to Insurance

Disability income (loss of time) benefits cannot exceed the greater of the insured's monthly earnings at the time the disability began or the insured's average earnings for the 2 years immediately preceding a disability. The monthly benefit cannot be reduced to less than $200.

Policy Renewal Provisions

Each health policy must express conditions and provisions for coverage continuation. Effective and termination dates must be expressed in the policy. Insurers may cancel under any of the renewal provisions when premium payments are discontinued.

Beth has a contract stating she must be disabled for 3 months before benefits will begin to be paid. This 3-month period is known as the:

Elimination Period *The Elimination Period is a period of time that must elapse after onset of a disability before benefits begin to be paid.

Right to Examine (Free Look)

Allows the insured, upon delivery of the policy, a specified number of days to look over the policy and if dissatisfied, return it for a full refund (usually 10 - 30 days). If applicable, additional information about this topic is presented in the state law chapter.

Eligible Expense

An expense actually incurred by, or on behalf of, an insured person for services and supplies that are: -Administered or ordered by a physician -Medically necessary to the diagnosis and treatment of an injury or sickness -Are not excluded by any provision of the policy; and incurred while the insured person's insurance is in force

Impairment Rider

An impairment rider is a temporary or permanent rider added to a policy that will exclude specific conditions that would normally cause a policy to be declined. The use of this rider allows an insured to qualify for a policy with the exclusion attached, where they would otherwise be declined altogether.

Non-Emergency Hospital Pre-authorization Admissions

An insured who does not comply with the provision may have the normal benefit level reduced. This managed care provision reduces hospitalizations.

Conformity with State Statutes

Any provision on the policy effective date that is in conflict with statutes of the state is automatically amended to meet state requirements.

Pre-existing Condition Provision

Applies to prior conditions when the applicant received (or should have received) medical advice or treatment within a specified period before the effective date of the policy.

Cancellable

Insurer or insured may cancel at any time (has lowest premium). This is the least favorable to the insured.

Optionally Renewable

Renewable only at the option of insurer (on renewal or anniversary date).

Insuring Clause

This provision states who is insured, the insurer, the amount of coverage, the time period and covered perils or losses. The premium or rate calculations are not part of this provision.

Legal Actions

Insured must wait 60 days, but no later than 3 to 5 years (differs from state to state) after proof of loss, before legal action can be brought against the insurer. If applicable, additional information about this topic is presented in the state law chapter.

Mandatory uniform provisions found in health insurance policies are designed to protect the:

Insured's interest *The mandatory uniform provisions are designed to protect the insured's interests.

Mandatory Uniform Provisions

Developed by the NAIC and must, by law, be included in every individual accident and health insurance policy. Different wording may be used as long as it is at least as favorable as the original wording. No additional provisions may be included which otherwise restrict or modify a uniform provision. There are 12 Mandatory Provisions that are designed to protect the insured's interests.

All of the following are examples of cost containment and managed health care, except:

Experimental drug treatment *Experimental drug treatment is not a cost containment method.

If an insurer makes a payment for a claim but the insured is dissatisfied with it, the insured must wait _____ days after proof of loss before taking any legal action.

60 *According to the Legal Actions Provision (a Mandatory Uniform Provision), the insured must wait at least 60 days after proof of loss before legal action can be brought against the insurer.

Change of Occupation

If the insured changes to a more hazardous occupation, the benefits will be reduced to that benefit which premiums paid would have purchased at the more hazardous occupation. If the insured changes to a less hazardous occupation, the benefits will pay as stated in the policy and the insured may apply for a rate reduction. If the insured works at two occupations, rates for the most hazardous occupation will be charged.

Which clause in a contract would state that Jim is covered by XYZ insurer for a monthly benefit of $2,000 in the event of disability?

Insuring Clause *The Insuring Clause states who is covered, by whom, for how much, for what period, and against what peril.

What is the purpose of a probationary period in a disability income policy?

It allows the insurance company to avoid illness claims made in the first 10-30 days of the policy *The purpose of the probationary period is to limit the insurance company's claims liability to sickness that occur immediately (10-30 days) after the policy is issued. Losses due to illness in the probationary period are considered as being caused by a preexisting condition.

What is an impairment rider?

It excludes specific conditions that normally would cause the entire policy to be declined *An impairment rider is a rider added to a policy that will exclude specific conditions that would normally cause a policy to be declined. The use of this rider allows an insured to qualify for a policy with the exclusion attached, where they would otherwise be declined altogether.

Which provision is a Mandatory Uniform Provision?

Legal Actions *The only response that is a Mandatory Uniform Provision is Legal Actions. All of the other responses are Optional Uniform Provisions.

Illegal Occupation/Act

Liability is denied if the insured is injured while committing an illegal occupation/act. Also, an illegal occupation will result in an application being declined for coverage.

Cost Containment in Health Care Delivery

Managed Health Care has been implemented to contain or reduce costs associated with health care delivery. Managed health care plans usually include the following cost-saving services:

Which statement is false?

Mandatory Second Surgical Opinion is when the physician submits claim information prior to treatment, to determine in advance if the procedure is covered *This describes Precertification, not Mandatory Second Surgical Opinion.

Time Limit on Certain Defenses (Incontestable)

No statement or misstatement (except fraudulent misstatements) made in the application at the time of issue shall be used to deny a claim after the policy has been in force for 2 years. If applicable, additional information about this topic is presented in the state law section. False statements on the application may exclude coverage for the first 2 years when material to the risk. In other words, if the insurer had the correct information at the time of application, they would not have issued the policy in the first place. The only exception to the time limit is for fraud; fraudulent statements can be used to deny coverage without limitation. This provision also provides that a pre-existing condition cannot be excluded beyond the 2-year time limit unless specifically excluded by name in the contract.

Albert owns a printing business in which he, at times, prints counterfeit money. One day while processing counterfeit bills, his arm is severely damaged. His insurance will:

Not cover the claim since he was involved in an illegal act at the time of injury *The Illegal Occupation/Act Provision (an Optional Uniform Provision) allows the insurer to deny liability if the insured is injured while engaged in an illegal occupation or committing an illegal act.

Which provision is an Optional Uniform Provision?

Other Insurance With This Insurer *Other Insurance With This Insurer is an Optional Uniform Provision. The other choices are Mandatory Uniform Provisions.

Conditionally Renewable

Policy is renewable unless a termination notice is given by the insurer or is nonrenewable for specified conditions that must be stated in the policy when issued.

Coordination of Benefits

Provides that if more than one plan covers a loss, the plans will coordinate so the insured does not get paid more than the entire loss. For example, if a disability occurs on the job, Workers' Compensation will be the primary payor and will coordinate benefits with Social Security disability and any other private disability insurance.

The Unpaid Premiums Optional Uniform Provision allows an insurer to:

Reduce the amount of a claim payment by the premium due *An insurer can withhold unpaid premiums, to which it has a legal right, when paying a claim that has occurred during the grace period. Both the insurer and the insured are 'indemnified' in this manner.

Reinstatement

Reinstatement allows the insured, at the insurer's discretion, to put back in force a policy that has lapsed for nonpayment of premium by paying past due premiums plus interest. The insurer may also require a reinstatement application to prove insurability. If the insurer does not reject the reinstatement application within 45 days coverage will be automatically reinstated. Accidents are covered immediately and sickness coverage generally begins 10 days after reinstatement.

Multiple Indemnity Rider

The Multiple Indemnity Rider provides additional benefits to a health insurance policy for losses due to an accident. This rider can be written as Double Indemnity or Triple Indemnity to provide double or triple the face amount if a death or dismemberment occur within 90 days of an accident. This rider is added for a small additional premium.

Entire Contract Clause

The entire contract includes the policy and provisions, a copy of the application, and any riders, waivers or endorsements. Changes to the policy must be requested in writing, signed by the insurer, and attached to the contract in the form of an amendment. The agent does not have the authority to directly make changes to the policy or waive any policy provisions.

Cancellation

The insurer may cancel with written notice to the insured. Unearned premium is refunded on a pro rata basis if cancelled by the insurer. The insured may cancel after the initial policy term with written notice to the insurer at any time. The unearned premium is returned on the short rate basis, which includes a cancellation fee.

When an accident and health policy is terminated, how are covered expenses that were incurred while the policy was still in force handled?

The insurer must pay for those expenses *If the covered medical services were provided while the policy was in force, the insurance company must pay the claim.

If an insured changes occupations and the new occupation is in a higher risk class than the former occupation, what does the change of occupation provision allow the insurance company to do in the event a disability claim is presented, but the insured failed to inform the insurer of the change?

The insurer will reduce the benefit proportionally in relation to the actual premium paid based on the higher risk classification *When an insured fails to notify the insurance company of a change in occupational to a higher risk classification and suffers a covered loss, the insurance company's only course of action is to reduce the benefit payable in relation to the premiums actually paid compared to the higher premium which should have been paid.

An individual is approved for a health insurance policy effective March 1. On March 4, the insured breaks his arm playing basketball with some friends, is treated at the local emergency room, and submits a bill for $2500 to his insurance company. On March 9, the insured decides to cancel the insurance and requests a refund of the $3000 annual premium he has paid. What will the insurance company do?

The insurer will refund the insured's $3,000 and has no responsibility to pay his claim *A policy cancelled during the free look period is void from the beginning, and no claims are payable. The Insured must receive a full refund of the premium he paid, and must also retain liability for 100% of the expense for his broken arm.

Utilization Review

The review that determines whether provided or proposed health care services were or are medically necessary. This does not apply to emergency services but involves "before, during and after" medical services.

Which provision states that the insurance company must pay claims immediately?

Time of payment of claims *Time of Payment of Claims (a Mandatory Uniform Provision) stipulates that claims are to be paid immediately upon written proof of loss.

If the insured is receiving regular disability income payments, the insurer can require notice of continuance of claim every ______ months.

6 *If the insured is receiving regular disability income payments, the insurer can require notice of continuance of claim every 6 months.

An insured should receive necessary claim forms within _____ days after notice of claim.

15 *According to the Claim Forms Provision (a Mandatory Uniform Provision), the insured should receive the necessary claim forms within 15 days after notice of claim.

The Time Limit on Certain Defenses (Incontestable) period is _____ years under individual health and disability contracts.

2 *The Time Limit on Certain Defenses (Incontestable) period is 2 years.

The Time Limit on Certain Defenses generally terminates the insurance company's right to deny a claim more than _________ years from the date of policy issue if a misstatement was made on an application.

2 *The time limit on certain defenses provision limits the time period the insurance company has to contest a claim to less than 2 years.

The grace period for an individual health insurance policy being paid on a quarterly basis is:

31 Days *7 days for weekly; 10 days for monthly; and 31 days for all other payment modes (quarterly, semi-annual, and annual).

Retrospective Review

A review of claims for services already received. Retrospective review may be used to confirm medical necessity of services, identify coordination of benefits opportunities, and to determine if a non-precertification penalty applies.

Probationary Period

A specified period of time before coverage goes into effect for pre-existing conditions. This is designed to protect the insurer for losses due to a sickness that immediately occur after the policy is issued. Losses due to an accident are not pre-existing and are covered immediately with no waiting period.

Prospective Review

A utilization review conducted prior to the delivery of the requested medical service. Prospective reviews include the initial review conducted before treatment starts, and the initial review for treatment to a different body part. During prospective (or concurrent) review, copies of medical records shall be required only when necessary to verify that the health care services being considered are medically necessary.

Payment of Claims

Claims are paid to the policyowner unless otherwise specified or there is an assignment of benefits. Any death benefits are paid to the named beneficiary. Under the payment of claims provision, assignment of benefits allows the person receiving medical benefits (the insured) to assign or transfer the payment of those benefits directly to the provider of services (a physician or hospital). Assignment of benefits makes the claims process easier by granting the health care provider permission to file the claim on behalf of the insured.

Change of Beneficiary

Consent of beneficiary is not required unless the beneficiary is irrevocable. The change becomes effective on owner's signature date upon the insurer's recording the change.

Insurers include provisions in contracts to help reduce unnecessary claims and the overpayment of claims. Which of the following is not one of those provisions?

Consideration Clause *The other choices are Case Management Provisions designed to contain costs. The Consideration Clause stipulates that the payment of the first premium and the statements in the application are the applicant's consideration, and the insurer's consideration is the promise to pay within the contract terms.

Period of Time (Nonrenewable)

The policy is written for a specified period of time and cannot be renewed.

Under the Optional Uniform Provisions, what happens when an individual health policy contains provisions that have gone out of compliance because of changes in state law?

The policy will be construed as if it conformed to the law *According to the Conformity with State Statutes Provision (an Optional Uniform Provision), any provision on the policy effective date that is in conflict with state statutes is automatically amended to meet state requirements.

Does the insured have the right to change the beneficiary designation of a health insurance policy?

Yes, unless the beneficiary is designated as irrevocable *The Change of Beneficiary Provision (a Mandatory Uniform Provision) establishes the insured's right to change the beneficiary, unless it is designated as irrevocable.

Misstatement of Age

Benefits paid will be based on what the premium paid would have purchased at the correct age. If the misstatement leads the insurer to provide coverage beyond the age limit, liability is limited to a refund of premiums.

Comprehensive Case Management

A case manager may be assigned to a case to determine the current appropriate course of action for an insured. The case manager may require a referral or a second opinion before approving a procedure. The case manager will also manage the utilization review of a subscriber's stay in the hospital may provide assistance with a future course of action during recovery of the insured.

Concurrent Review

A utilization review conducted while services are being provided. The insurer monitors the insured's hospital stay to make certain that everything is proceeding according to schedule. The length of hospital stay is monitored.

Time of Payment of Claims

All claims are to be paid immediately upon written proof of loss. Loss of time benefits (disability income) will be paid not less frequently than monthly.

Consideration Clause

Consideration by definition is the exchange of value in a contract. This clause states the amount and frequency of the premium, including statements in the application that determine the premium. This is the insured's consideration in exchange for the insurer's promise to pay benefits within the contract terms.

All states have adopted the Uniform Individual Accident and Sickness Policy Provision Law. If an insurer changes any of these provisions, it must make sure that the change does not:

Create a meaning that is less favorable to the insured than the original wording *The insurer must assure that any variation must be at least as favorable as the original wording and no provision may be deleted.

Out-of-Area Benefits and Services

Description of benefits and services available outside the HMO service area. Medically necessary emergency benefits must be made available when the insured is outside the service area.

In which ONE of the following situations would an insurance company most likely use an impairment rider?

G is looking to obtain a health insurance policy, but is concerned about a current heart condition *An impairment rider excludes coverage for a specific ailment or condition that otherwise would be covered, so the applicant is still able to obtain coverage for other health care needs.

Physical Exam and Autopsy

Gives the insurer the right to examine the insured or require an autopsy at insurer's expense, where not prohibited by law.

Noncancellable

Guaranteed renewable to age 65 with guaranteed premiums. This is the one most favorable for the insured, because only the owner can terminate the policy and rates never increase. The insurer cannot change the plan once issued.

Other Insurance with This Insurer

If the insured has more than 1 policy with the same company, the insured may decide which policy to use. Excess premiums for the excess coverage will be returned. The provision protects insurers against overpayment of claims.

Optional Uniform Provisions are included in the contract at the _______ option

Insurer *The Optional Uniform Provisions are included at the insurer's option. However, if used, they must conform to that state's insurance code.

Preventive Care

Managed care plans are known for stressing preventive care. This is care designed to prevent illness or disease. The basic premise is that it is more cost effective to prevent losses than to treat losses after they occur. Examples of preventive care include covering well child care visits, immunizations, mammography screenings, as well as nutrition and weight loss programs.

Which statement is correct with regard to notifying the insurance company of a loss under a disability policy?

Notice of claim must be filed within 20 days of the loss, or as soon as possible *Unless reasonably prevented from doing so, an insured must notify the insurance company of a claim in writing within 20 days of the loss.

Emergency Services

Obtaining services in an emergency situation, which includes directives for the contact of an HMO before care is received, and what to do in case of life-threatening emergencies.

Alternatives to Hospital Services

Oftentimes, care may be provided in a setting other than a hospital. Many procedures can now be performed in a surgical center on an outpatient basis as opposed to a hospital admission. Treatment may also be provided by a visiting nurse in one's home, or hospice for the terminally ill.

Guaranteed Renewable

Renewable without proof of insurability, at insured's option, to age 65 or for the insured's lifetime. Premiums are not guaranteed, and may be changed on a class basis only, not an individual basis.

Which of the following is not an example of a cost containment measure?

Replacement *Mandatory second opinions, utilization review and precertification are all considered cost containment measures. Replacement can apply to any policy that is cancelled when a new policy is issued and is not specific to managed care plans.

Precertification

Requires the insured to notify his/her insurer in advance of certain procedures (not emergency). The physician may submit claim information prior to treatment to know in advance if the procedure is covered and at what rate benefits will be paid.

Grace Period

The grace period is the period of time after the premium due date before the policy lapses for nonpayment of premium. The grace period varies based on frequency or mode of premium. The grace period must not be less than 7 days for weekly premiums, 10 days for monthly premiums, and 31 days for all other modes of premium.

When an insured is discharged from the military, what happens to health insurance coverage that was in place prior to being called up for active military service?

The insured will be permitted to resume coverage and premiums without any waiting periods *Under the military suspension provision, individual plans may suspend coverage (and premium) during active military service. When the insured is no longer serving, these individuals will be permitted to resume coverage and premiums without any waiting periods.

Waiver of Premium

The insurer will waive the premiums if an insured becomes disabled and qualifies for the benefit. In order to qualify for benefits, the insured must be disabled for a specified time period, typically 90 days - 6 months. During the waiting period, premiums must continue to be paid. Once the qualifications have been met, the premiums are waived retroactively to the start of the disability and the insured receives a refund of any premiums paid during the waiting period. Premiums continue to be waived until the insured has recovered from the disability, at which time the premiums are resumed at the same amount and frequency.

Unpaid Premiums

This provision allows an insurer to deduct unpaid premiums from a claim that has occurred during a grace period.

Military Suspension Provision

This provision is designed to protect active duty and reserve members of the armed forces. Individual plans may suspend coverage (and premium) during active military service. When no longer serving, these individuals will be permitted to resume coverage and premiums without any waiting periods.

Proof of Loss

This provision limits the amount of time the insured has to submit proof of a loss to the insurer. Proof of loss is required within 180 days of loss or in the shortest period of time possible, but not to exceed 1 year unless the insured suffers legal incapacity.

Mandatory Second Surgical Opinion

This requirement may be included in policies that offer surgical expense benefits, requiring the insured to consult a physician, other than the attending physician, to determine the necessity of surgery and/or alternate methods of treatment. If the insured should fail to obtain the second opinion, benefits are greatly reduced.

Guaranteed Insurability Rider

This rider, which may also be referred to as the Future Insurability Option, is commonly found in disability income and long-term care policies. It will allow an insured to increase limited benefits at specified intervals in a policy without evidence of insurability. Typically the rider drops from the policy around the insured's age 50. This rider is added to the policy for an additional premium.

Under the Legal Actions Mandatory Uniform Provision, an insured must wait at least _____ days after providing proof of loss before he or she can take legal action against the insurer.

60 *An insured must allow a reasonable passage of time for an insurer to live up to its contractual obligations. In this case, reasonable is 60 days.

Elimination Period

A waiting period found in disability insurance policies before benefits are payable after a loss occurs. This acts as a time deductible and eliminates claims for losses that do not last a minimum period of time. The policyowner can choose the elimination period in the policy and the time period selected will affect the premium. The longer the elimination period chosen, the lower the cost of coverage.

Which of the following allows reimbursement benefits to be paid directly to medical providers?

Assignment of benefits *When a policy pays on a reimbursement basis, benefits are paid directly to the insured. The exception to this is if the insured assigned benefits to the provider(s), in which case they would then be paid directly to the provider.

Rank the following renewability provisions in order from least favorable to most favorable in terms of benefit to an insured:

Cancellable, conditionally renewable, guaranteed renewable *The renewability provisions in order from lowest to highest in terms of benefit to an insured/policyowner are: cancellable/nonrenewable, optionally renewable, conditionally renewable, guaranteed renewable, and noncancellable.

All of the following are required uniform provisions in individual health insurance policies EXCEPT:

Change of occupation *The grace period, entire contract clause, and reinstatement provision are considered mandatory provisions while the change of occupation is an optional provision.

Once issued, the application becomes part of the ___________, when attached.

Entire Contract *To be regarded a part of the contract, the application for insurance must be included with the rest of the policy. It may not be incorporated 'by reference.'

Insurance with Other Insurers

If the insured has duplicating coverage with other insurers, any one insurer's liability is limited to a proportion of the loss. This is referred to as the Coordination of Benefits for individual policies. This is calculated by determining each company's proportion of the total coverage and applying that same proportion to the loss. Only policies written on the insured are applicable. This concept applies to losses on a service or expense incurred basis.

Claim Form Provision

If the insurer requires a claim form, it must be received by the insured from the company within 15 days after notice of claim. If forms are not furnished, the insured may submit written proof of occurrence, character, and extent of the loss.

Notice of Claim

It is the insured's responsibility to notify the insurer of a claim. It must be given in writing and is required within 20 days of loss or as soon as reasonably possible. A notice to the agent is the same as notice to the insurer. If the insured is receiving continuing disability benefits, the insurer can require notice of continuance of claim every 6 months.

How may the premium in a guaranteed renewable policy be increased?

It may be increased for all similarly situated insureds based on age *A guaranteed renewable policy must be renewed upon payment of the current premium. If the insurer wants to raise the premium for an individual insured, it must increase the premium for all insureds that are "similarly situated" - persons who are the same age, all persons in the same state, all persons who own the same policy by "form number". Premium increases cannot be the result of an individual's claims history or a change health status.

Intoxicants and Narcotics

Liability is denied if an injury is caused by the insured being intoxicated or under the influence of drugs unless administered on the advice of a physician.

Ambulatory Outpatient Care

These facilities monitor the cost effectiveness of outpatient services and provide, in addition to diagnosis and treatment: -Preventive care -Health education -Family planning -Dental/vision care

Optional Uniform Provisions

These provisions are included at the insurer's option; however, if used they must conform to the state's insurance code. These provisions are designed to protect the insurer.

First Dollar Coverage

This provides that the insured is eligible for coverage starting with the first dollar and no deductible or out-of-pocket expenses will apply.

According to the Proof of Loss provision, how long does an insured have under normal circumstances to furnish the insurer with evidence of a claim?

Within 180 days of loss *Proof of loss is required within 180 days of the loss.