Chapter 8 - Health Insurance Policy Provisions

In a life insurance policy, which provision states who may select policy options designate and name a beneficiary, and be the recipient of any financial benefits from the policy?

Owner's Rights

P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability?

P will still receive declared dividends (When receiving waiver of premium benefits, the insured is no long responsible for premium payments. Everything else stays the same when the insurance company WAIVES PREMIUMS.)

Cash Surrender

Take the cash and run

D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole life policy contains a War Exclusion clause. How much will D's beneficiary's receive?

The full face amount

Which Accident and Health policy provision addresses preexisting conditions?

Time limit on certain defense provisions (applies to preexisting conditions, initial application, and new claims. Has a specific time period to defend their validity.)

Which of the following statements BEST describes what the Legal Actions provision of an Accident and Health policy requires?

An insured must wait at least 60 days after Proof of Loss has been submitted before a lawsuit can be filed (It takes time for paperwork to go through the mail and for the insurance company to research you r claim, they are given 2 months. If they have still not resolved the claim within 60 days, the insured can now take legal action.)

Reduced paid up

Keep a policy for the rest of your life with a REDUCED face value and never make another payment

Which of these are NOT an example of a Nonforfeiture option?

Life Income (Nonforfeiture options are received when you surrender or cancel an insurance policy that has cash value in it. Examples of Nonforfeiture option: extended term, reduced paid-up, cash surrender)

Which of these is NOT considered to be a right given to a policyowner?

Modify a provision in the insurance contract (The policyowner has no ability to change or modify ANY PROVISIONS in the insurance contract.)

M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take?

Pay face amount minus the past due premium

Which of these is considered a mandatory provision?

Payment of Claims

Which of these statements accurately describes the Waiver of Premium provision in an insurance policy?

Premiums are waived (or paid) after the insured has been totally disabled for a specified time period (Keeps the cover in force without premium payments after an insured has been totally and permanently disabled as defined in the policy.)

What is the purpose of the Time of Payment of Claims provision?

Prevents delayed claim payments by the insured

The Consideration clause in an insurance policy indicates that a policyowner's consideration consists of a completed application and...

The initial premium (completed application + initial premium = consideration clause)

The policy provision that entitles the insurer to establish conditions the insured must meet while a claim is pending is...

Time limit on certain defenses (Insurance may set certain conditions that must be met for your claim to be valid. There is a time limit for how you they can expect you to be injured.)

What does the ownership clause in a life insurance policy state?

Who the policyowner is and what rights the policyowner are entitled to (The policyowner, insured, and beneficiary can all be different people. The insured can elect someone else to be in charge of their insurance.)

Which of the following statements is CORRECT about accelerated death benefits?

Must have a terminal illness to qualify (Since the illness is terminal, the insurance company will offer to accelerate your benefit, so you can spend time with your family and get your financial affairs in order.)

When an insurer issues a policy that refuses to cover certain risks, this is referred to as an...

Exclusion (The exclusion section dedicated circumstances when the insured is NOT covered by the policy. There are 5 common exclusions: Intoxicants and Narcotics, Commitment of Felony, Aviation, War, and Suicide.)

According to the Mandatory Uniform Policy Provisions, what is the maximum amount of time after the premium due date during which the policy remains in force even though the premium has not been paid?

31 days

Which of these Nonforfeiture Options continue a build-up of cash value?

Reduced Paid-up (taking your cash value and buying a single-pay whole life policy with a smaller face value.)

K failed to pay a renewal premium within the time granted by the insurer. K then sends in a payment which the insurer subsequently accepts. Which policy provision specifies that coverage may be restored in this situation?

Reinstatement (Mandatory provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment. To reinstate a policy, it is required to pay all past-due premiums and to provide a statement of good health.)

The Consideration clause in an insurance contact contains what pertinent information?

Amount of premium payments and when they are due

N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?

Claim will be denied

N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot?

Exclusion (The insurance company will exclude any injuries sustained while piloting a small aircraft. Commercial airline pilots are covered.)

What does a Face Amount Plus Cash Value Policy supposed to pay at the insured's death?

Face amount plus the policy's cash value (Normally, the cash value of a policy is for the insured to use while they are alive and the face value of a policy is what the beneficiary receives upon the death of the insured. Face amount + Cash Value policy = face amount + cash value

After an insured gives notice of loss, what must he or she do if the insurer does not furnish forms?

File written proof of loss (Must be provided within 15 days of loss)

After an insured gives notice of loss, what must he/she do if the insurer does not furnish forms?

File written proof of loss (Must provide a proof of loss form within 15 days of receipt of the notice of loss. If the insured wants the claim paid, it is always on them to PROVE that a LOSS occurred.)

An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period?

Full face amount minus any past due premiums

D, the beneficiary under her husband's AD&D policy, submits an accidental death claim on May 1, 2010 following his death. However, the company denies the claim on the basis that death was due to natural causes. She decides to talk to her attorney. What is the earliest date for taking legal action against the insurer.

July 1, 2010 (An insured must wait 60 days after filing a written Proof of Loss for a Disability Income claim or AD&D claim prior to taking legal action against the insurer.)

Extended Term

Keep your policy's face value for an EXTENDED time period and never make another payment

According to the Time Payment of Claims provision, the insurer must pay Disability Income benefits no less frequently than which of the following options?

Monthly (Disability income payments typically means the individual is not able to work. Most bills come monthly, thus the disability income benefits must be not less frequent than monthly.)

If an insurance company issues a Disability Income policy that it cannot cancel or for which it cannot increase premiums, the type of renewability that best describes this policy is called

Noncancellable (The insurance company cannot cancel and which premiums cannot be increased.)

The Notice of Claims provision requires a policyowner to

Notify an insurer of a claim within a specified time (If the insured does not notify the insurance company of a claim within 20 days, the insurance company can deny payment for the claim.)

S filled a written Proof of Loss for a Disability Income claim on September 1. The insurance company did not respond to the claim. S can take legal action against the insurer beginning:

November 1 (60 days after written proof of loss before legal actin can be brought against the company.)

Which of the following is considered to be the time period after a Health Policy is issued, during which no benefits are provided for illness?

Probationary Period (Period of time between the effective date of a Health Policy and the date of coverage begins for sickness.)

An insurance company normally has 2 years to contest information provided on an accident and health application. This 2 year period begins on the date that the

Producer completes the application (An insurance company can usually contest the information contained in an accident and health application for two years from the date the insurance company dates the policy.)

The Legal Actions provision of an insurance contract is designed to do all of the following, EXCEPT:

Protect the producer (Legal Actions provision is designed to provide the insurer adequate time to research a claim, protect the insured from having claim research delayed, give the insured guidelines for pursuing legal actin against an insurer.)

When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take?

Void the policy only if it is discovered during the Contestable and proven to be material

S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary?

$50,000 (Since S died of natural causes ONLY, the $50,000 whole life policy will pay the beneficiary.)

The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called...

Accidental Death and Dismemberment Rider (AD&D) (AD&D is designed to provide a benefit if the insured accidentally loses their arms, legs, eye sight, or dies. Normally these policies only last until a specific age and are very inexpensive.)

P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?

Accidental Death and Dismemberment provision

P is a Major Medical policyowner who is hospitalized as a result of injuries sustained from participating in a carjacking. How will the insurer most likely handle this claim?

Claim will be denied

The provision that defines to whom the insurer will pay benefits to is called...

Payment of Claims (May be medical service provider, the insured, or some other beneficiary.)

A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision?

Payor provision (Payor provision ensures the child's life insurance policy does not lapse if the parent paying the child's premium dies or becomes disabled.)

G is involved in an automobile accident as a result of driving while intoxicated and suffers numerous injuries. According to the Intoxicants and Narcotics exclusion in G's policy, who is responsible for paying the medical bills?

The insured

J, an Accidental Death and Dismemberment (AD&D) policy holder, dies after injuries sustained in an accident. J's age as stated on the application five years ago was found to be understated by ten years. Which of the following actions will the insurance company take?

The insurer will adjust the benefit to what the premiums paid would have purchased at the insured's actual age (It does not matter how old the application is, the insurance company can ALWAYS adjust the policy benefit if it discovers the age was misstated.)

T files a claim on his Accident and Health policy after being treated for an illness. The insurance company believes that T misrepresented his actual health on the initial insurance application and is, therefore, disputing the claim's validity. The provision that limits the time period during which the company may dispute a claim's validity is called

Time limit on certain defenses (The insurance company can contest your application for up to 2 years from the date of application. That is the TIME LIMIT to DEFEND your application answers. After that point, the application is considered incontestable.)

An insured pays premiums on an annual basis for an individual health insurance policy. What is the MINIMUM number of days for the Grace Period provision?

31 days (If an insured pays their premium less frequently than monthly (quarterly, semi-annually, or annually), the usual grace period is 31 days.)

When does a Probationary Period provision become effective in a health insurance contract?

At the policy's inception (similar to a new job on the day you start, the probationary period of an insurance policy begins at the policy's inception.)

An insurance company receives E's application for an individual health policy. E did not complete all of the medical history questions because she could not remember the exact dates. E signed the policy and submitted it to the insurance company anyway. A few weeks later, E suffers a heart attack and is hospitalized without completing the medical history questions and paying the initial premium. E is not insured. Which of the following clauses details the conditions that E did not meet?

Consideration clause (E did not finish the medical history questions and did not complete the application, thus E is not considered for any insurance policies and is not covered.)

Which of the following insurance policy provisions specifies the benefits or services a policy will provide?

Insuring Clause (specifies the services or amount of benefits to be paid. A promise to provide this coverage under these circumstances.)

A young, married teacher has two children and owns a Whole Life policy. If the teacher wants an increasing Death Benefit to protect against inflation, the teacher should select which of the following Dividend Options?

Paid-Up Additional Insurance (Paid-Up Additional Insurance will allow the teacher to continue to increase his face value every year he receives a dividend check.)

Which of the following statements describes the purpose of the Insuring clause in an insurance policy?

States the scope and limits of the coverage (Establishes what the insurance company promises to cover and pay out the policy if premiums are being paid.)

What should an insured do if the insurer does not send claims forms within the time period set forth in a health policy's Claims Forms provision?

Submit the claim in any form (it can be on a napkin and crayon and it is still valid as long as all the information is provided.)

T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay?

$50,000 (The claim will be paid because it is outside of the contestable period. However, suicide is not considered an accident and only the $50,000 face value will be paid.)

Monthly premium individual health insurance policies must provide a grace period of at least...

10 days

M's insurance company denied a reinstatement application for her lapsed health insurance policy. The company did not notify M of this denial. How many days from the reinstatement application date does the insurance company have to notify M of the denial before the policy will be automatically placed back in force?

45 days (The insurance company must approve or deny a reinstatement application within 45 days. If not notified within that time period, the policy will be automatically reinstated.)

The guarantee of insurability option provides the long-term care policyowner the ability to...

Buy additional coverage at a later date (The insured can increase the coverage amount without providing proof of good health.)

When an insured changes to a more hazardous occupation, which disability policy provision allows an insurer to adjust policy benefits and rates?

Change of occupation provision (In the change of an occupation provision to a less hazardous occupation, benefits can be increased in the event of a covered claim. The change is not required.)

Which of the following policy provisions states that the producer does NOT have the authority to change the policy or waive any of its provisions?

Entire Contract (Agent does NOT have the authority to change the policy or waive its provisions)

T owns an Accident & Health policy and notifies her insurance company that she has chosen a less hazardous occupation. Under the Change of Occupation provision, which of the following actions may her insurance company take?

Increase her policy's coverage amount

All of these statements about the Waiver of Premium provision are correct EXCEPT

Insured must be eligible for Social Security disability for claim to be accepted (They simply must be totally disabled to qualify, Waiver of Premium is available on both permanent and term insurance policies, A waiting period must pass before becoming eligible for benefits.)

The agreement in an insurance contract that states a specific sum of money will be paid to a designated person upon an insured's death is called...

Insuring agreement (Insuring agreement is an insurance company's promise to pay stated benefits.)

What benefit does the Payor clause on a Juvenile Life policy provide?

Premiums are waived if payor becomes disabled. (The payor provision guarantees that premiums will be waived if the owner of a juvenile or child life policy dies or becomes disabled. It does NOT provide any money or income to the child.

An insured must notify an insurer of a medical claim within how many days after an accident?

20 (A claimant or policyholder must notify the insurance company for a loss within 20 days, or as soon as reasonably possible.)

A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct?

20-Pay Life accumulates cash value faster than Straight Life (The quicker you agree on having a whole life policy paid up, the quicker you will accumulate cash value.)

B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of

Additional Whole Life coverage at specified times (Guaranteed Insurability Rider or Future Increase Option allows the insured to buy additional whole life coverage at future dates specified in the contract with no evidence of insurability required.)

L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will...

Adjust the death benefit to a reduced amount (Age is the #1 face that determines a person's insurance premium. Since L is actually older than what is stated, the benefit would be reduced.)

Which of the following statements describes what an Accident and Health policyowner may NOT do?

Adjust the premium payments (cannot change or decide on the premium unless the policy is cancelled.)

In insurance policies, a waiver of premium provision keeps the coverage in force without premium payments...

After an insured has become totally disabled as defined in the policy (Does not matter that the insured is unable to work if they do not meet the definition of totally disabled as defined in the insurance policy. The company will waive their premium as long as they have been totally disabled as defined in the policy.)

S has a Whole Life policy with a premium payment due soon. Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium payment can be made?

Automatic Policy Loan (A provision that allows the insurance company to automatically take out a loan against the cash value in your POLICY to pay your PREMIUM. This is designed to avoid a policy lapse if you don't pay your required premium on time.)

What action will an insurer take if an interest payment on a policy loan is not made on time?

Automatically add the amount of interest due to the loan balance (If you decide not to pay the interest, the insurance company will add the interest to your loan balance.)

P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?

Beneficiary will be paid the Death Benefit (Because the policy is over the 2 year incontestable period, they must pay the Death Benefit.)

S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT...

Beneficiary's age (Beneficiary's age will never impact the price of an insurance policy.)

A Disability Income policyowner recently submitted a claim for a chronic neck problem that has now resulted in total disability. The original neck problem that has now resulted in total disability. The original neck injury occurred before the application was taken 5 years prior. The neck injury was never disclosed to the insurer at the time of application. How will the insurer handle this claim?

Claim will be paid and coverage will remain in force (The application was taken 5 years ago and is outside of the contestable period. The insurance company cannot refuse to pay due to misstatements on the application. The claim will be paid in full.)

A Disability Income policyowner recently submitted a claim for a chronic neck problem that has now resulted in total disability. The original neck problem injury occurred before the application was taken 5 years prior. The neck injury was never disclosed to insurer at the time of application. How will the insurer handle this claim?

Claim will be paid and coverage will remain in force.

How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period?

Claims are denied under the Suicide clause of the policy

With any insurance policy, what is the purpose of the Grace Period?

Give the policy owner additional time to pay past due premiums (Grace period gives policyowner extra time to pay a premium after the due date.)

Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan?

Collateral Assignment (policyowner assigns ownership of the policy over to the bank for a loan. The bank can now designate a beneficiary, select policy options, and be the recipient of any financial benefits from the policy if the loan is not paid back.)

The incontestable clause allows an insurer to

Contest a claim during the contestable period (During the first 2 years of the insurance policy, the application is contestable and can question any of the answers in the application.)

Which statement regarding the Misstatement of Ages provision is considered to be true?

Coverage will be adjusted to reflect the insured's true age is misstatement of age is discovered

Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?

Decreasing Term (An automatic premium loan takes a loan against your cash value, it is only an option if your policy has cash value. Whole life polices have cash value, term policies do not have cash value so you will not see an Automatic Premium Loan Provision with any type of term policy.)

Which health clause stipulates that an insurance company must attach a copy of the application to the policy to ensure that it is part of the contract?

Entire Contract

Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself?

Entire Contract

Which health policy clause stipulates that an insurance company must attach a copy of the application to the policy to ensure that it is part of the contract?

Entire Contract (Requires that the application becomes part of the policy.)

When an insurance company sends a policy to the insured with an attached application, the element that makes the application part of the contract between the insured and the insurer is called...

Entire contract provision (Standard provision which requires the entire contract (additional endorsements, application, etc) must be delivered with the policy itself once the policy is approved and makes up the entire contract.)

Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE?

Evidence of insurability is required when the option is exercised (No medical questions will be asked when a guaranteed insurability option is exercised, but the insureds attained age will be used to determine the premium cost for the new policy.)

Insurance benefits NOT covered due to an act of war are...

Excluded by the insurer (Insurance polices exclude coverage that occurs while on active military duty.)

Health insurance benefits NOT covered due to an act of war are

Excluded by the insurer in the contract provisions (Entirely eliminates coverage for a specified risk, such as an act of war or aviation.)

Which of the following provisions specifies how long a policyowner's insurance coverage will remain in effect if the policyowner does not pay the premium when it is due?

Grace period (ensures the policyowner does not lose their insurance.)

B purchased a disability income policy with a rider that guarantees him the option of purchasing additional amounts of coverage at predetermined times without to provide evidence of insurability. What kind of rider is this?

Guaranteed insurability rider (allows an insured the optin of increasing their policy benefit in the future without providing insurability or good health.)

T sends proof of loss to her insurer for an acceptable medical expense claim under her individual Health Insurance policy. Upon receipt, the insurer must pay the benefits.

Immediately (Under the Time of Payment of Claims provision, the insurer must pay the benefits immediately after receiving proof of loss.)

A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the

Policy Loan provision (Policy loan provision allows you to take a policy loan against your available cash value. You are not able to borrow more than the amount of cash value you have in your policy. You are not required to pay the money back.

M has an insurance policy that also has an outstanding policy loan at the time of M's death. The insurer will deduct the outstanding loan balance from...

Policy proceeds (You are not required to pay back any loan you take against your cash value, but if you don't pay back the loan, any outstanding loan balance will be subtracted from the amount of money your beneficiary receives.)

J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions?

Reinstatement provision

S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy?

Return of premium rider (Requires the insurance company to RETURN all of the PREMIUM paid back to the insured at a specific time, or back to the beneficiary at death.)

With Optionally Renewable Health policies, the insurance company may

Review the policy annually and determine whether or not to renew it

What is the Suicide provision designed to do?

Safeguard the insurer from an applicant who is contemplating suicide

Which of the following provisions is NOT required in HMO contracts or certificates?

Seven-day grace period (HMOs must provide grace period of at LEAST 10 days.)

If an individual has an Accidental Death and Dismemberment policy and dies, an autopsy can be performed in all these situations EXCEPT...

When the state prohibits this by law (The insured agrees to an autopsy or physical exam at the request at the request of the insurance company, it will be performed as long as it is not prohibited by state law.)