Chapter 5: health insurance policy provisions

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 clause details the conditions that E did not meet? - entire contract clause - MIB clause - Insuring clause * consideration clause

Consideration Clause. * A health insurance contract is valid only if the insured provides consideration in the form of the full minimum premium and the statements made in the application.

Which of these statements accurately describes the Waiver of Premium provision in an Accident and Health policy? - Past due premiums on a lapsed policy are waived and coverage is restored - The insured is paid a monthly benefit to keep insurance premiums current in the event of total disability - Premiums are waived after the insured has been unemployed for a specified time period * Premiums are waived after the insured has been totally disabled for a specified time period

Premiums are waived after the insured has been totally disabled for a specified time period

A Disability Income policyowner recently submitted a claim for a chronic 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 * After a policy has been in force for 2 (sometimes 3) years, it enters the incontestable period, in which the insurer may not deny a claim based on information not disclosed at the time of application.

Optional Provisions: 3. Other Insurance with This Insurer

Under this provision, the total amount of coverage to be underwritten by a company for one person is restricted to a specified maximum amount, regardless of the number of policies issued. This provision is designed to protect the insurer by controlling over insurance through its own policies.

What type of rider would be added to an Accident and Health policy if the policyowner wants to ensure the policy will continue if he/she ever becomes totally disabled? - AD&D rider - disability income rider - guaranteed insurability rider * waiver of premium rider

Waiver of Premium rider * If a policyowner covered under an accident and health policy wanted to ensure the policy will continue if they ever become totally disabled, they would want to add a waiver of premium rider.

What type of renewability guarantees premium rates and renewability? - optionally renewable - conditionally renewable * noncancellable - gauranteed renewable

noncancellable

With Optionally Renewable Health policies, the insurer may

review the policy annually and determine whether or not to renew it * With an Optionally Renewable policy, the insurance company may review the policy annually and choose whether or not to renew it.

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 reinsurer * The insured - The insurer - The Guaranty Association

the insured * in this situation, the insured is liable for the medical bills

Which Accident and Health policy provision addresses preexisting conditions? - Proof of Loss - Legal Actions * Time Limit on Certain Defenses - Payment of Claims

time limit on certain defenses

Mandatory Policy Provisions 10. Physical Exam and Autopsy

• The physical exam and autopsy provision entitles a company, at its own expense, to make physical examinations of the insured at reasonable intervals during the period of a claim, unless it's forbidden by state law. • Forget everything you learned on "Law and Order," only the state can forbid an autopsy. You gave up your (and your families) rights to refuse when you applied for insurance.

In health 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 * The waiver of premium provision keeps the coverage in force without premium payments if the insured has become totally disabled as defined in the policy.

What is the initial requirement for an insured to become eligible for benefits under the Waiver of Premium provision?

Insured must be under a physician's care * under waiver of premium, which is a rider that will pay your premium while you're disabled, you must have a doctor certify that you meet the definition of disability as contained in the rider.

Which of the following BEST describes a short-term medical expense policy?

Nonrenewable

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? - free-look * reinstatement - grace period - consideration

Reinstatement * in this situation, coverage may be restored under the reinstatement provision

Optional Provisions: 5. Insurance with Other Insurers

Similar to the previous, the insurance with other insurers provision allows an insurer to pay benefits to the insured on a pro-rata basis when the insurer was not notified prior to the claim that the insured has other health coverage.

Mandatory Policy Provisions 4. Reinstatement

• The Reinstatement provision specifies that if an insured fails to pay a renewal premium within the time granted but the insurer subsequently accepts the premium, coverage may be restored .• Under certain conditions, a policy that has lapsed may be reinstated. • Reinstatement is automatic if the delinquent premium is accepted by the company or its authorized agent and the company does not require an application for reinstatement. • If it takes no action on the application for 45 days, the policy is reinstated automatically. • To protect the company against adverse selection, losses resulting from sickness are covered only if the sickness occurs at least 10 days after the reinstatement date. • Accidents are covered immediately upon reinstatement • To reinstate any policy, you need: A reinstatement application, statement of good health, all back premiums.

Optional Provisions: 11. Intoxicants and Narcotics

• The insurer is not liable for any loss attributed to the insured while intoxicated or under the influence of narcotics. • Losses due to injuries sustained while committing a felony, or attempting to do so, also may be excluded

Insuring Clause

• The insuring clause is the part of the health insurance policy that states the kind of benefits provided and the circumstances under which they will be paid. • The purpose of the insuring clause in a Health and Accident policy is to specify the scope and limits of the coverage provided. • The insuring clause is the part of the health insurance policy that identifies the specific type of benefits or health care services that are covered by that policy and the circumstances under which they will be paid. • Any promises the INSURER makes will be in the INSURING clause.

Mandatory Policy Provisions 5. Notice of Claim

• The notice of claim provision describes the policyowner's obligation to notify the insurance company of a claim in a reasonable period of time • Typically, the period is 20 days after the occurrence or a commencement of the loss, or as soon thereafter as is reasonably possible • You need to let the insurance company know that you are going to be filing a claim, so they are expecting your claim forms.

With Accidental Death and Dismemberment policies, what is the purpose of the Grace Period?

Gives the policyowner additional time to pay past due premiums *The purpose of the Grace Period is to give the policyowner additional time to pay overdue premiums.

Optional Provisions: 6. Relation of Earnings to Insurance

If disability income benefits from all disability income policies for the same loss exceed the insured's monthly earnings at the time of disability, the relation of earnings provision states that the insurer is liable only for that proportionate amount of benefits as the insured's earnings bear to the total benefits under all such coverage.

Optional Provisions: 7. Unpaid Premiums

If there is an unpaid premium at the time a claim becomes payable, the amount of the premium is to be deducted from the sum payable to the insured or beneficiary.

Optional Provisions: 4. Insurance with Other Insurer

In attempting to deal with the potential problem of over insurance, the insurance with other insurer provision states that benefits payable for expenses incurred will be prorated in cases where the company accepted the risk without being notified of other existing coverage for the same risk.

Which of the following is NOT included in the policy face? - Free Look provision - Name of the insured - Name of the insurer * Exclusions

exclusions

Nonrenewable Policies

• Nonrenewable policies are normally associated with short-term health insurance. These are policies that are for established policy lengths of a year or less and are considered temporary.

NAIC MODEL HEALTH INSURANCE POLICY PROVISIONS

• Years ago, the National Association of insurance Commissioners (NAIC) developed a model Uniform Individual Accident and Sickness Policy Provisions Law • Almost all states have adopted this model law or similar legislation or regulations • The purpose of the NAIC law was to establish uniform or model terms, provisions, and wording standards for inclusion in all individual health insurance contracts

Uniform Individual Accident and Sickness Policy Provisions Law

• Years ago, the National Association of insurance Commissioners (NAIC) developed a model Uniform Individual Accident and Sickness Policy Provisions Law • Almost all states have adopted this model law or similar legislation or regulations • The purpose of the NAIC law was to establish uniform or model terms, provisions, and wording standards for inclusion in all individual health insurance contracts * although the wording may differ from one insurer to another, the basic provisions are the same. Some of these provisions are similar to life insurance policy provisions. * the purpose of these provisions is to define the rights and duties of both insurance company and the policyholder. Any of the provisions may be reworded by the insurer, so long as modifications does not make the provision less favorable to the policy holder or beneficiary.

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

Payment of Claims

Which of the following statements about a Guaranteed Renewable Health Insurance policy is CORRECT?

Premiums normally increase at time of renewal

Mandatory Policy Provisions 6. Claim Forms

• It is the company's responsibility to supply a claim form to an insured within 15 days after receiving notice of claim • If the insurance company fails to send out the claim forms within the time period required by the provision, the insured should submit the claim in any form, which must be accepted by the company as adequate proof of loss • You can submit your claim using a napkin and crayon as long as you provide all the necessary information.

Probationary Period

• Specified number of days after an insurance policy's issue date during which coverage is not afforded for sickness. • A Probationary Period provision in a health insurance contract becomes effective at the inception of the policy

Mandatory Policy Provisions 7. Proof of Loss

• The statement that an insured must give an insurance company to show that a loss actually occurred is a Proof of Loss • After a loss occurs, or after the company becomes liable for periodic payments (e.g., disability income benefits), the claimant has 90 days in which to submit proof of loss. • Insurance company can't pay you if you don't prove there is a loss.

Dependent Children Benefits

Dependent children must be covered by their parents health insurance plan until a certain age. Coverage may also continue for children who are incapable of earning their own living due to a mental or physical disability.

Optional Provisions: 9. Conformity with State Statutes

Any policy provision that is in conflict with state statutes in the state where the insured lives at the time the policy is issued is automatically amended to conform with the minimum statutory requirements.

S filed 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 - Sept. 21 - Oct. 16 * Nov. 1 - Dec. 1

November 1 * the insured must wait 60 days after written proof of loss before legal action can be brought against the company.

K has a health policy that must be renewed by the insurer and the premiums can only be increased if applied to the entire class of insureds. This type of policy is considered - optionally renewable - conditionally renewable * guaranteed renewable - noncancellable

guaranteed renewable * guaranteed renewable is best described as a policy that must be renewed and premium rate increases can only be applied if for an entire class of insureds.

Types of Beneficiaries

• A beneficiary can be either specific (a person identified by name and relationship), or a class designation (a group of individuals such as the "children of the insured"). • If no one named, or if all beneficiaries die before the insured dies, death benefit will go to insured's estate.By Order of Succession: • Primary: First in line to receive death benefit proceeds • Secondary (contingent): Second in line to receive death benefit proceeds • Tertiary: Third in line to receive death benefit proceeds. If no one is named, death benefit will go to insured's estate

Noncancelable Policies

• A noncancelable policy cannot be cancelled nor can its premium rates be increased under any circumstances (other than reaching a specific age or non-payment of premiums) • Noncancelable provisions are most commonly found in disability income policies. They are rarely used in medical expense policies • Noncancelable policies may not be changed in anyway by the insurer (sometimes up to a specified age), so long as the premiums are paid. • "We're stuck with you. We can't cancel you, we can't raise the premiums or do anything else to entice you to cancel." • This is common for disability policies.

Consideration Clause

• In health insurance, the insurance company exchanges the promises in the policy for a two-part consideration from the insured. (Consideration is an exchange of something of value on which a contract is based). A health insurance contract is valid only if the insured provides consideration in the form of: • The initial full minimum premium required • The statements made in the application • The applicant begs, "Please CONSIDER me for insurance. Here is my completed application, my initial premium, and how much money/how often I agree to pay. Please CONSIDER me!"

Mandatory Policy Provisions 11. Legal Actions

• The insured cannot take legal action against the company in a claim dispute until after 60 days from the time the insured submits proof of loss. • The legal action provision in a health contract is limited to no more than 5 years. • The Legal Action provision provides the insurer adequate time to research a claim • At least give the insurance company 2 months to take care of you before you take them to court.

renewability provisions

- the health insurance policy will also define the insurance company and the insured's right to cancel or renew coverage. - each policy should be carefully examined to determine which of the following renewal provisions it contains, as these are extremely important provisions * cancellable policies * optionally renewable policies * conditionally renewable policies * guaranteed renewable policies * non-cancellable policies

common health insurance exclusions or restrictions

- war or act of war injuries - intentionally self-inflicted injuries - maternity benefits

According to the Time Limit of Certain Defenses provision in an Individual Health Insurance Policy, nonfraudulent misstatements first become incontestable:

2 years from the date of the policy was issued

Optional Provisions: 10. Illegal Occupation

The illegal occupation provision specifies that the insurer is not liable for losses attributed to the insured's being connected with a felony or participation in any illegal occupation.

Mandatory Policy Provisions 12. Change of Beneficiary

The insured, as policyowner, may change the beneficiary designation at any time unless a beneficiary has been named irrevocably.

Optional Provisions: 1. Change of Occupation

This provision also allows the insurer to reduce the maximum benefit payable under the policy if the insured switches to a more hazardous occupation or to reduce the premium rate charged if the insured changes to a less hazardous occupation

The clause in an Accident and Health policy which defines the benefit amounts the insurer will pay is called the * Insuring clause - Contestable clause - Consideration clause - Free-look provision

insuring clause

Owner's Rights Provision

• Defines the person who may name and change beneficiaries, select options available under the policy, and receive any financial benefits from the policy.

Optional Provisions: 8. Cancellation

• Though prohibited in a number of states, the provision for cancellation gives the company the right to cancel the policy at any time with 45 days' written notice to the insured • This notice must also be given when the insurer refuses to renew a policy or change the premium rates • If the cancellation is for nonpayment of premium, the insurer must give 10 days' written notice to the insured, unless the premiums are due monthly or more frequently • The cancellation provision also allows the insured to cancel the policy any time after the policy's original term has expired by notifying the insurer in writing

Mandatory Policy Provisions 2. Time Limit on Certain Defenses

• The Time Limit on Certain Defenses provision limits the time during which the insurance company may challenge the validity of an insurance claim based on a misstatement made on the insured's application. • Under the time limit on certain defenses provision, the policy is incontestable after it has been in force a certain period of time, usually two years. • This is similar to the incontestable clause in a life insurance policy. Unlike life policies, a fraudulent statement on a health insurance application is grounds for contest at any time, unless the policy is guaranteed renewable • An insurance company can usually contest the information contained in an accident and health application starting on the date the insurance company dates the policy • There is a TIME LIMIT for which you must DEFEND yourself. This applies to the contestable period (application), preexisting conditions, and new claims (conditions that must be met while a claim is pending. • If you file a claim that you broke your leg yesterday, and the insurance company sees you moving a grand piano up 5 flights of stairs, you will probably have to DEFEND your claim. However, at some point, it is expected your leg will heal.

Mandatory Policy Provisions 1. Entire Contract

• The entire contract includes the actual policy and the application • It states that nothing outside of the contract (the contract includes the signed application and any attached policy riders) can be considered part of the contract • It also assures the policyowner that no changes will be made to the contract or waive any of the provisions after it has been issued, even if the insurer makes policy changes that affect all policy sales in the future. This, however, does not prevent a mutually agreeable change or modifying the contract after it has been issued .• Any change to a policy must be made with the approval of an executive officer of the insurance company whose approval must be endorsed on the policy or attached in a rider • This mandatory health policy provision states that the policy, including endorsements and attached papers, constitutes the entire insurance contract between the parties • We can't send you additional paperwork later. THE ENTIRE POLICY AND APPLICATION is sent to you and that makes up your ENTIRE CONTRACT.

Optional Provisions: 2. Misstatement of Age

• The misstatement of age provision allows the insurer to adjust the benefit payable if the age of the insured was misstated when application for the policy was made • The insurer can adjust the benefit to what the premiums paid would have purchased at the insured's actual age • If the insured was older at the time of application than is shown in the policy, benefits would be reduced accordingly • The reverse would be true if the insured were younger than listed in the application

Mandatory Policy Provisions 9. Payment of Claims

• The payment of claims provision in a health insurance contract specifies how and to whom claim payments are to be made. • Payments for loss of life are to be made to the designated beneficiary • If no beneficiary has been named, death proceeds are to be paid to the deceased insured's estate. Claims other than death benefits are to be paid to the insured. • Should the insurance company pay you, or the doctor, or someone else?

Mandatory Policy Provisions 3. Grace Period

• The purpose of the Grace Period is to give the policyowner additional time to pay overdue premiums. • The policyowner is given a number of days after the premium due date during which time the premium payment may be delayed without penalty and the policy continues in force • Depending on the state, the minimum grace periods typically specified are 7 days for policies with weekly premium payments (i.e., industrial policies), 10 days for policies with premiums payable on a monthly basis, and 31 days for policies payable on an annual basis. • The effect of nonpayment of premium before the expiration of a grace period will cause a policy lapse. • If an insurer pays an individual accident and health insurance claim during a policy's grace period, the amount of unpaid premium may be subtracted from the reimbursement • Grace period is the same definition for your insurance bill as it is for all of your other bills. Don't pick it as an answer if the question isn't talking about paying your bill late and keeping your insurance. • Remember Aunt Grace's Birthday 7 (makes payments more than once a month, weekly) - 10 (makes premium payments once a month) - 31 (makes Premium payments less than monthly (quarterly, semiannually, etc.). 7-10-31

Guaranteed Renewable Policies

• The renewal provision in a guaranteed renewable policy specifies that the policy must be renewed (as long as premiums are paid) until the insured reaches a specified age, such as 60 or 65. • Guaranteed renewable policies normally have increasing premiums • If rates are increased on a guaranteed renewable policy, the must be increased for an entire rate class • "We're definitely going to renew you, but we may raise the premiums so high you won't want to keep the insurance." • This is the common renewability for Medicare Supplement and Long-term care policies.

Mandatory Policy Provisions 8. Time of Payment of Claims

• The time of payment of claims provision provides for immediate payment of the claim after the insurer receives notification and proof of loss. • If the claim involves disability income payments, they must be paid at least monthly if not at more frequent intervals specified in the policy • The purpose of the Time of Payment of Claims provision is to prevent the insurance company from delaying claim payments • You did your part (Paid your bill and got injured/sick/ etc.) now the insurance company has to immediately do our part (Pay you) and it can't be less often than monthly, or you wouldn't be able to pay your bills.