Ch. 18 Policy Provisions

4. Insurance with Other Insurers

The essence of these provision sis this: if an insured has two or more policies from different companies that cover the same expense, and if the insurers were not notified that the other coverage existed, each insurer will pay a proportionate share of any claim. This prevents the insured from receiving benefits greater than the loss. When both of these optional provisions appear in the same policy, PART 1 must be captioned expense incurred benefits as it deals with losses to be reimbursed on that basis. Likewise PART 2 must be captioned other benefits as it deals with overinsurance for losses reimbursed on any basis other than expense incurred.

Change of Beneficiary

The policy owner, who is usually the insured, may name a beneficiary either REVOCABLY, which means that the insured can change the beneficiary later, or IRREVOCABLY, which means the beneficiary designation may not be changed. Ex Ben has named his spouse the beneficiary of the accidental death benefit of his health insurance, and he has relinquished his right to change that designation. Now he wants to obtain a large loan, and the lender agrees to make the loan if Ben assigns any payments under his policy to the lender. Ben may assign the policy only with his spouses permission because she is the irrevocable beneficiary. Ben would no need this permission if his spouse were a revocable beneficiary.

3. Other Insurance with This Insurer

This provision deals with insurance of the same type with the same insurer. This is called overinsured. This optional provision allows an insurer to control overinsurance through its own policies. The company can establish maximum amounts payable to any one insured for certain coverages - disability income insurance being the most common - so no matter how many policies an insured has with this particular company, there is al limit on the amount of benefits the will be paid. - if the insurer chooses the first provision, it is the insurers responsibility to decide on the maximum indemnity that will be paid and the type of coverage to which the provision applies. when thees limitations are included in the policy, any amount of like insurance over the specified maximum is considered void, and the insurer will return premiums paid for these void benefits to the insured or the insureds estate. - if the insurer uses the second paragraph, coverage is limited to one policy as selected by the insured, the beneficiary, or the administrator of the insureds estate. when the second option provision is used, the premiums paid for the other policy or policies are refunded.

1. Change of Occupation

This provision relieves the insurer from paying benefits not anticipated when the premium was established. if an insureds occupation is more hazardous than the insurer knew, and resulted in injury or illness, the insurer might be required to pay a larger benefit than the premium warrants. Ex. If Max, the insured, had continued at the occupation he had when he purchased his disability income policy, disability from an accidental injury would have resulted in a benefit of $1,600 per month based on the premium Max paid. However, Max changed to a more hazardous occupation without notifying the insurer, and then suffered a disability injury on the job. The insurer will pay only the amount of benefit that Max would have ben able to purchase, with the premium already paid, for the more hazardous job, so Macs benefit is reduced. - IF max had changed to a less hazardous occupation but paid premiums based on the more hazardous occupation. Ma sends proof that he changed occupations to the insurer, the premium rate is reduced accordingly, and the insurer returns the excess premium to Max on a pro rata (proportionate) basis. When calculating how much of the extra premium to return, the company uses the more recent of: - the date the occupation changed - the policy anniversary date immediately preceding receipt of the proof of change.

5. Relation of Earnings to Insurance - Average Earnings Clause

This provision specifically concerns loss of time, or disability income coverages Designed to prevent malingering - remaining disabled in order to collect insurance. The provision specifically addresses the relationship between what the insured actually has been earning on the job and the amount of insurance available by failing to return to work. The illustration gives an example of how insurance might pay more than the insured earns. According to this provision, if the total monthly benefits from all policies are more than the insureds monthly income, each insurer will pya a proportionate share of the loss income. Because the insured paid for more coverage than can be collected, each company must refund a proportionate share of the excess premium.

5. Exercise 18.B

1. A policy must automatically be considered reinstated by an insurer 45 days after submitting any required application and or premium. 2. Coverage for sickness by a reinstated policy will begin after a waiting period of 10 days.

5. Renewability Clause

1. Cancelable Polices 2. Optionally and Conditionally Renewable Policies 3. Guaranteed Renewable Policies 4. Non cancelable Policies

Eleven Option Policy Provisions

1. Change of Occupation 2. Misstatement of Age 3. Other Insurance with This insurer 4. Insurance with other Insurers 5. Relation of Earnings to Insurance - Average Earnings Clause 6. Unpaid Premium 7. Cancellation 8. Conformity with State Statutes 9. Illegal Occupation 10. Narcotics

Twelve Mandatory (required) Policy Provisions

1. Entire Contract 2. Time Limit on Certain Defenses (incontestability) 3. Grace Period 4. Reinstatement 5. Notice of Claim 6. Claim Forms 7. Proof of Loss 8. Time of Payment of Claims 9. Payment of Claims 10. Physical Examination and Autopsy 11. Legal Actions 12. Change of Beneficiary

2. Free Look (Right to Examine Clause )

Allows individuals to look over the policy for a specified period with the right to refuse it. Usually 10 day trial period beginning on the day the individual receives the policy. If they decide to return the policy they receive a full refund of the prepaid premium.

10. Narcotics

As with illegal occupation provision, many insurers include this optional provision. Injuries or death resulting while the insured is under the influence of either alcohol or narcotics is commonly excluded.

9. Time of Payment of Claims

Except for claims involving periodic payments over a specified time span, the insurer must make the payment immediately after receiving proof of loss. Payment of period indemnities (for disability, for instance) must be made at least monthly. Ex. Serena has been receiving $700 a month for a total disability, but she is able to return to work two weeks after her most recent indemnity payment. She has two more weeks benefits coming. She files a final proof of loss, including statements from her doctor (that she has been released) and her employer (that she has returned to work). Upon receipt of this final proof of loss, the insurer must pay the final two weeks indemnity immediately. Notice in every case, the insured must provide written loss to the insurer.

11. Waiver of Premium

Under this provision, the insurer waives premium payments after the insured has been totally disabled for a specified period usually three or six months. If the insured remains totally disabled, no further premium payments will be required from the insured. If the insured recovers from the disability, the insured will resume paying the premiums.

7. Claim Forms

When an insurer receives a notice of claim, it should furnish the insured with forms to provide proof of loss within 15 days. If the insurer fails to do so, however, the insured is required to act to protect the claim by filing written proof of loss detailing the occurrence, the character, and the extend of the loss.

2. Misstatement of Age

Whether the insured misstated his age intentionally or unintentionally the company simply adjusts benefits accordingly.

11. Physical Examination and Autopsy

While the insured is alive and receiving benefits, the insurer may require that the insured submit to physical examinations. If an insured has died, apparently accidentally, the insurer may have an autopsy performed to determine the exact cause of death. However, any applicable state laws that might prevent such an autopsy take precedence. The insurer is required to pay for examinations or autopsies and may require only reasonable examinations

Exercise 18. C

Fil iN Blanks Barbara has a terrible skiing accident resulting in a badly broken leg which required her to be hospitalized. She had an individual Hospital Expense policy that provided reimbursement for covered expenses. In accordance with the Mandatory Provisions of her policy, Barabara had ___20 days__ to give Notice of Claim. The insurer then had ___ 15 days___ to provide her with Claim Forms She had a total of ___90 days__ after her accident to provide Proof of Loss. The payment of Claims provision directs the insurer to pay the benefits to the __Insured__ and the Time Payment of Claims provision tells them to pay__Immediately__. If the insurer fails to pay her claim, Barbara may take Legal action no sooner than ___60 days__ and no later than ___3 years__ after filing her Proof of Loss. Answers 1. 20 days (Notice of Claim) 2. 15 days (Claims Forms) 3. 90 days (proof of loss) 4. Insured (payment of claims) 5. Immediately (Time of Payment of Claims) 6. 60 days (legal action) 7. 3 years (legal action)

1. Entire Contract

"This policy, including the endorsements and the attached papers, if any constitutes the entire contract of insurance. No change in this policy shall be valid until approved by an executive officer of the insurer and unless such approved be endorsed hereon or attached hereto. No agent has authority to change this policy or to waive any of its provisions." This provision defines the scope of an ENTIRE CONTRACT as: - The insurance policy provisions - A copy of the application - riders, if any; and - attachments or amendments

3. Grace Period

"A grace period of __ days (the period varies according to premium payment frequency: 7 days for weekly premiums; 10 days for monthly premiums; 31 ays for all other policies) will be grated for the payment of each premium falling due after the first premium, during which grace period the policy shall continue in force." Cancellation Provision: "Subject to the right of the insurer to cancel in accordance with the cancellation provision hereof" Refuse Renewal: " unless not less than five days prior to the premium due date the insurer has delivered to the insured, or has mailed tot he last address as shown by the records of the insurer, written notice of its intention not to renew this policy Beyond the period for which the premium has been accepted. " Insurers must allow the insured a period of grace for premium payment. This is a specified time following the premium due date during which coverage remains intact. During a grace period, the company continues coverage in full force and will accept the premium from the policy owner just as if it were not late.

7. Cancellation

Insurer may cancel at anytime. The insurer may do so by delivering (usually by mail) written notice to the insured UNPAID PREMIUM - $300s last known address. Cancellation is effective no fewer than 5 days after the date of notice. Part 2 When a policy is canceled before is expiration date, some of the prepaid premium is unearned - that is, the insurance company has not yet earned the premium because the period of time it was intended to cover has not yet passed. The way in which unearned premium is returned to the insured depends on who canceled the policy: the insurance company or the insured. - When the insurance company cancels, the portion of the premium dollar the insurer has already earned is kept by the insurer and the entire unearned portion is returned to the insured. this is a pro rata return. - When the insured cancels, the insurance company is allowed to retain a portion of premium over and above that which it has earned. So the insurer keeps earned premium and a portion of unearned premium, returning the balance of unearned premium to the insured. This is a short rate return.

9. Illegal Occupation

Most policies include the illegal occupation. "the insurer shall not be liable for any loss to which a contributing cause was the insureds commission of or attempt to commit a felony or to which a contributing cause was the insureds being engaged in an illegal occupation"

5. 4 Noncancelable Policies

Noncancelable and non cancelable and guaranteed renewable are often sued interchangeably to describe a non cancelable policy. An insurer may not cancel or refuse to renew a non cancelable policy. Although this appears to be the same as a guaranteed renewable policy, there is one important difference. With a guaranteed renewable policy, the insurer may increase the premiums by classifications. With a non cancelable policy, the insurer may only increase premiums based on the terms of the policy. Ex. a non cancelable policy would have to include a premium increase in the contract at the time it is issued.

4. Reinstatement

Part 1 of Provision - According to this part of the provision, with certain exceptions, a lapsed policy is reinstated when either the company or the company authorized agent accepts subsequent premiums. - However an application for reinstatement might be required, and a conditional receipt could be issued to the insured for any premium payment. The insurer will then generally notify the applicant whether or not the policy has been reinstated, but if the insurer does not so notify the applicant, the policy is automatically reinstated on the 45th day after the date of the receipt. Part 2 of Provision Once the policy is reinstated, there is: - a 10 day waiting period for sickness coverages - n waiting period for accident coverages.

9. Nonoccupational Coverage

Some people work in occupations that are hazardous. To provide these individuals with general accident and sickness or disability income coverage, some companies issue policies that contains provision excluding job related injuries. Without the exposure to everyday work hazards, the insurer takes a lesser risk so the premiums are generally lower than for policies that cover occupational hazards.

5. 3 Guaranteed Renewable Policies

Some policies the insurer relinquishes its rights to cancel at any time and to refuse renewal at a premium due date. - Renewal is guaranteed as long as the insured pays the premium - The insurer may not cancel unless the insured fails to pay the premium - Premiums may not be increased on an individual basis. - Premiums maybe increased on the basis of an entire classification, such as occupation - the guarantee to renew ends at a specified age. Nonpayment of premium is the only reason an insurer may cancel or refuse to renew a guaranteed renewable policy. Furthermore, the insurer is not permitted to increase the premiums on the basis of individual insureds experience. It may, however, increase the premiums on a class basis.

1. The Policy Face

The face of the policy is a standard printed form containing the name of the insurance company and providing enough information to give the insured a capsule summary of what type of policy and what type of coverage are provided by the contract. The policy face identifies the insured and states the term of the policy ( when it goes into effect and when coverage expires). The policy face also states how the policy can be renewed. The policy face usually gives a brief statement of the type or types of benefits. However, it is essential to examine the benefit provisions within the body of the contract to obtain a complete understanding of the coverage provided.

5. 1. - Cancelable Policies

The insurer may cancel coverage at any time, provided it returns nay unearned premiums to the insured. Cancellation does not relieve the insurer from paying valid existing claims. Not common. Unless the policy contains clause that permit the company to cancel on other than a premium due date, it simply cannot be cancelled. The company may refuse to renew the policy on a premium payment date, but, unless specifically stated in the policy, health insurance policies usually are not cancelable by the insurer. When cancelling a cancelable policy, the company must notify the insured in writing, mailing the notice and the unearned premium to the insureds last known address. In most states, cancellation is effective not less than 5 days from the date of the noice.

7. Exclusions and Reductions

is a provision that entirely eliminates coverage for a specified risk. A reduction is a decrease in benefits as result of specified conditions. - Benefits will not be provided if the cause of loss is due to military service, a war or civil dis order, a self inflicted injury such as an attempted suicide, or if the loss is due to aviation as a pilot. Generally coverage is temporarily suspended if an individual resides in a. foreign country for a specified period of time and reinstated when the insured returns to the United States or no longer is serving in the military.

18. 5 Other Health Insurance Provisions (Standard)

1. The policy face 2. Free Look (right to examine clause) 3. Insuring Clause 4. Consideration Clause 5. Renewability Clause 6. Benefit Payment Clause 7. Exclusions and Reduction s 8. Preexisting Conditions 9. Nonoccupational Coverage 10. Case Management Provisions 11. Waiver of Premium

2. Time Limit of Certain Defenses (Incontestability)

A. " After two years from the date of issue of this policy, no misstatements, except fraudulent misstatements, made by the applicant in the application for such policy be used to void the policy or deny a claim fro loss incurred or ability (as defined by the policy) commencing after the expiration of such two-year period" B. "No claim for loss incurred or disability commencing after two years from the date of issue of this policy shall be reduced or denied on the ground that a disease or physical condition, not excluded from coverage by name or specific description effective on the date of loss, had existed prior to the effective date of coverage of this policy" Part B states that after two years, the policy cannot be voided, a claim may not be denied, and benefits may not be reduced on the grounds that an illness or a condition was preexisting. This does not prevent an insurer from specifically excluding coverage for a certain condition, but to be excluded, the condition must be named or specifically described in the policy when it is written and is referred to as an impairment waiver or rider.

6. Unpaid Premium

Upon the payment of a claim under this policy, any premium then due and unpaid or covered by any note or written order may be deducted therefrom. Ex. Frederick sends his insurer a claim for $1,800 to cover hospital and medical expenses from an illness. CLAIM 1800 The insurer notes that Frederick owes a past due premium of $300, which the insurer deducts from the claim. UNPAID PREMIUM - 300 .. then pays the $1500 AMOUNT OF CLAIM PAID - 1500

3. Insuring Clause

Usually the initial policy clause. it represents the insurers promise to pay under the conditions stipulated in the policy. The insuring clause perform these functions: - Describes the general scope of coverage - Provides an definitions required - Sets forth the conditions under which benefits will be paid. This clause is often viewed as the foundation of a health policy in terms of the insurers general agreement to provide coverage

10. Case Management Provisions

1. Second Surgical Opinion - a provision that can be included in policies that offer surgical expense benefits. This coverage allows the insured to consult a doctor, other than the attending physician, to determine alternative methods of treatment. This provision can sometimes be mandatory for certain procedures. 2. Utilization Review - consist of an evaluation of the appropriateness, necessity, and quality of health care and may include readmission certification concurrent review. 3. Pre certification provision (aka pre certification authorization or prospective review), - the physician can submit claim information before providing treatment to know in advance whether the procedure is covered under the insureds plan and at what rate it will be paid. This way both the physician and the insured know in advance what the benefit will be and can plan accordingly. This provision allows the insurance company toe valuate the appropriateness of the procedure and the length of the hospital stay. 4. Concurrent Review Process - the insurer monitors the insureds hospital stay to make sure the everything is processing according to schedule and that the insured will be released from the hospital as planned. 5. Ambulatory outpatient care - is the alternative to costly inpatient diagnostic testing and treatment. Today, ambulance care is best known to operate in hospital outpatient departments. However, this care can be provided by special ambulatory care health centers, group medical services, hospital emergency rooms, multi specialty group medical practices, and health care corporations. These ambulatory facilities provide, in addition to diagnosis and treatment, preventive care, health education family planning, and dental and vision care.

8. Preexisting Conditions

Any condition for which the insured sought treatment or advice before the effective date of the policy. Also be defined as any symptom that would cause a reasonable and prudent person to seek diagnosis and medical treatment. This concept prevents an applicant who suspects that he may've a serious medical problem from buying health insurance and then going to a doctor for diagnosis and treatment. Preexisting conditions may be covered by the insurer if they are indicated on the application. The insurer will then review the medical information and depending on the condition, may elect to cover the problem or exclude it. Usually only serious or chronic conditions will be excluded.

4. Consideration Clause

Consideration is an exchange of something of value on which a contract is based. When both parties exchange consideration, the contract is validated. In health insurance, the insurance company exchanges the promises in the policy for a two part consideration from the insured. A health insurance contract is valid only if the insured provides consideration in the form of: - The full minimum premium required - The statements made in the application In health policies, the consideration clause not only defines consideration but also states: - the date coverage begins - the length of the initial coverage period.

8. Proof of Loss

Filing a proof of loss when benefits are paid periodically vs. filing proof for a one time, non periodic loss as provided in the provision. 1. Receives periodic payments of disability income from May 1 through October 11th. - Must file proofs of loss within 90 days after October 11- the date the insureds liability for payment has ended. 2. Submits a claim for hospital expense after an accident at home on April 25. - Must file proofs of loss within 90 days after April 25 - the date of the loss since no periodic benefits are involved. AKA Written proofs of loss must be furnished within 90 days after the date of loss. However, when the claim involves periodic payments because of a continuing loss, proofs must be furnished within 90 days after the end of the period for which the company is liable. - If it was not reasonably possible for the insured to provide proofs of loss within the time required, the claim is not invalidated. Nevertheless, unless the insured suffers legal incapacity, proofs of loss must be furnished no later than one yea from the date they were otherwise due.

6. Notice of Claim

Provision explanation - When a claim arises, certain stipulations apply. If reasonably possible, the insured must give written notice of claim to the insurer within 20 days after the loss occurs. The insured may send the notice either to the address the insurer provides or to the agent. Although the term reasonably is not defined, an example will illustrate one possibility. An insured is injured in an accident and remains in a. coma for five weeks, thus failing to provide written notice of claim within the required 20 days. The company is still liable for the claim because it could not reasonably have required the claim to be filed during the time the insured was in a coma. Loss of time benefits payable for at least two years will include the following provisions explanation. - the essence of this provision is that if the policy provides disability income for an extended period, the insurer can require that the insured provides, every six months,written notice that the claim is continuing. This provision does not apply when the insured suffers a legal incapacity.

10. Payment of Claims

Required Portion - Death benefits will be paid to the named beneficiary - If there is no beneficiary designated, the company will pay the benefit to the insureds estate - If the insured was receiving monthly indemnities under the policy and some accrued benefits remain at the time of death, the company may pay these accruals to either the beneficiary or the insureds estate. - While the insured is alive, all other benefits are paid to the insured unless otherwise specifically designated in the policy. Two Optional Paragraphs 1. Facility of Payment Clause - If the insured or the beneficiary cannot legally release the company from further liability, as when the insured or beneficiary is a minor or is legally incapacitated, the company may pay the benefits to any relative by blood or marriage who is deemed to be entitled to the money. - The amount paid to this person cannot exceed 1,000. If a claim is paid under this provision, the payment absolves the company of further liability. 2. Unless the insured specifically directs otherwise, the company may pay benefits to a hospital or person rendering medical or surgical services. However, the company may not require that the insured enter a specific hospital or see a particular doctor.

8. Conformity with State Statutes

The provision applies to the laws of the insureds state of residence.e Not only does the provision help insurers avoid issuing policies that conflict with existing state laws, it also can prevent reissuing polices that are in conflict with any ruling enacted during the time a policy is being or is about to be issued.

5. 2. - Optionally and Conditionally Renewable Policies

To remain in force, health policies must be renewed periodically, that is, the coverage remains in force only for the length of time for which premiums have been paid. Both the policy owner and the insurer have a role in the renewal process. - A policy owner has the option of cancelling a policy at any time by notifying the insurer, or of allowing it to lapse at a premium due date by not paying the premium. When the insurer has the option to refuse to renew, the policy may be one of two types: - Optionally Renewable : which means the insurer may elect not to renew for any reason or for no reason but may exercise that right only on the policy anniversary date or a premium due date. - Conditionally Renewably : Which means the insurer may elect not to renew only under conditions specified int he policy. Health status is not a condition used when' determining renewability.

6. Benefit Payment Clause

Typically benefits are paid in the form of: - Periodic income under disability policies - Lump sum reimbursements for expenses incurred under hospital, medical surgical and major medical policies - lump sum indemnity payments for death or dismemberment under accidental death and dismemberment policies. Ex. Suppose the benefits provision of Mitchells policy indicates that if he is unable to work under certain conditions, he will be paid a specified amount monthly. This is known as a PERIODIC INCOME payment under his disability income policy. On the other hand - Toms medical expense resulting from hospitalization for surgery will be paid under his major medical policy in the form of a lump sum reimbursement. According to the benefits provision of Carlas policy, she will receive 10,00 if one of her limbs is accidentally amputated. This is an example of a lump sum indemnity payment under an accidental death and dismemberment policy

12. Legal Actions

When written proof of loss has been submitted, the company needs time to investigate the claim and make certain it is valid. To provide the insurer with this time, this provision prohibits the insured from suing the insurer for at least 60 days after filing a written proof of loss. The maximum time during which suit can be filed is three years after written proof of loss is furnished