health insurance policy provisions chapter 9

Cancellation

An insurer may cancel an individual health policy only if the insurer makes a determination to cancel all policies of the same type or if the reason for cancellation is any of the following and stated as a policy provision: A fraudulent or material misstatement made by the applicant on the application for the health policy; Excess or other insurance in the same insurer; Nonpayment of premium; or Any other reason specified by the Department of Consumer and Business Services. An insurer may also rescind an individual health benefit plan if the policyholder performs an act of fraud, or makes intentional misrepresentation of a material fact as prohibited by the terms of the policy.

Change of Occupation

Because the occupation of the insured is an important underwriting consideration, particularly for disability income insurance, health insurance policies usually include a provision that allows the insurer to adjust benefits if the insured changes occupations. If the insured makes a change to a more hazardous occupation, upon claim, benefits will be reduced to that which premiums paid would have purchased assuming the more hazardous occupation. If the change is to a less hazardous occupation, the insured is entitled to apply to the insurer for a rate reduction.

misstatement of age

If the insured misstated his or her age or gender at the time of the application, the benefits paid under the policy would be adjusted to what the premium paid would have been purchased at the correct age.

Reinstatement

If the premium has not been paid by the end of the policy's grace period, the policy will lapse (terminate). This provision stipulates under what conditions the insured may reinstate coverage. Reinstatement is automatic if the company or an authorized representative accepts the policy premium and does not require a reinstatement application. However, if a reinstatement application is required and a conditional receipt is issued for the payment of the policy premium, the company may approve or disapprove the reinstatement application. Coverage is automatically reinstated if not refused within 45 days from the date the conditional receipt was issued. Accidents will be covered immediately following the reinstatement; however, sickness is covered only after 10 days. This helps to protect the insurer from adverse selection.

Term

In some cases, an individual may need health insurance for a specified period of time. Coverage is then considered a term health policy, which is not renewable. When the term expires, the insured must purchase another policy. These policies are also called period of time policies as they are only effective for a specific period of time, and will be cancelled by the company at the end of the term. Examples of term health policies are travel accident policies, short term health plans, or accident only policies. Policies which cover specific events, such as school functions, summer camp, or athletic events, are other examples. Once the event is over, coverage is no longer in place.

incontestability

No statement or misstatement (except fraudulent misstatements) made in the application at the time of issue will be used to deny a claim after the policy has been in force for certain amount of time (usually 2 years).

renewable at option of insurer

Optional renewability is similar to conditional renewability, except that the insurer may cancel the policy for any reason, on certain homogeneous classes (not individuals within a class). Renewability is at the option of the insurer. The insurer can only decide not to renew a policy on the policy anniversary or premium due date (renewal date). If the insurer elects to renew coverage, it may also increase the policy premium.

Consideration clause

The consideration clause, which is usually located on the first page of the policy, makes it clear that both parties to the contract must give some valuable consideration. The payment of the premium and the statements in the application are the consideration given by the applicant. The insurer's consideration is the promise to pay in accordance with the contract terms.

Renewability clause

The face page of the individual health insurance contract must clearly state under what conditions the policy may be renewed. If the insurer reserves the right to refuse renewal, the insurer must deliver or mail to the policyholder's last known address a written notice of its intention not to renew the policy beyond the period for which the premium has been accepted. Since individual health insurance policies provide coverage for a specified term, the absence of a cancellation provision does not guarantee continuing protection. Even when the insurer cannot cancel a policy, the insurer may retain the right to refuse to renew the policy. Each policy should be carefully examined to determine which renewal provision it contains, as these are extremely important provisions. Noncancellable The insurance company cannot cancel a noncancellable policy, nor can the premium be increased beyond what is stated in the policy (note that the policy may call for an increase in a certain year, such as "age 65," but that must be stated in the original contract). The insured has the right to renew the policy for the life of the contract; the insurer cannot increase the premium above the amount for which the policy was originally issued. However, the guarantee to renew coverage usually only applies until the insured reaches age 65, at which time the insured is usually eligible for Medicare. For disability income insurance the policy will be renewed beyond age 65 only if the insured can provide evidence that he or she has continued to work in a full-time job. Know This! The insured may cancel an insurance policy at any time

right to examine (free look)

The free-look or right to examine provision allows the insured a period of several days to look over the policy, and if dissatisfied for any reason, return it for a full refund. It is commonly 10 daysfrom the date the policy is delivered, but may vary for different types of policies. This provision is mandated for individual policies in most states. Every health insurance policy issued in Oregon, except single premium nonrenewable policies, must have printed on its face or attached to it a notice stating that the insured has 10 days from policy delivery to return the policy and to have the premium refunded.

grace period

The grace period is the period of time after the premium due date in which premiums may still be paid before the policy lapses for nonpayment of the premium. Although the grace period may differ according to individual state laws, in most cases the grace period cannot be shorter than 7 days for weekly premium policies (industrial policies), 10 days for monthly premium policies, and 31 days for all other modes. Coverage will continue in force during the grace period.

guaranteed renewability

The guaranteed renewable provision is similar to the noncancellable provision, with the exception that the insurer can increase the policy premium on the policy anniversary date. The insured, however, has the unilateral right to renew the policy for the life of the contract. The insurer may increase premiums on a class basis only and not on an individual policy. As with the noncancellable policy, coverage generally is not renewable beyond the insured's age 65. Medicare Supplements and long-term care policies must be written as guaranteed renewable contracts, and cannot be cancelled by the company at the insured's age 65.

claim procedures

The notice of claim provision spells out the insured's duty to provide the insurer with reasonable notice in the event of a loss. Notice is required within 20 days of the loss, or as soon as reasonably possible. Notice to the agent equals notice to the insurer. Upon receipt of a notice of claim, the company must supply claims forms to the insured within a specified number of days (usually 15, but may vary from state to state). If forms are not furnished, the claimant is deemed to have complied with the requirements of the policy if he or she submits written proof of the occurrence, nature of the loss, and extent of loss to the insurer. After a loss occurs, the claimant must submit proof of loss within 90 days of the loss or as soon as reasonably possible, but not to exceed one year. However, the 1-year limit does not apply if the claimant is not legally competent to comply with this provision. The time of payment of claims provision specifies that claims are to be paid immediately upon written proof of loss. The time of payment for claims is usually specified in different policies as 60 days, 45 days, or 30 days. However, if the claim involves disability income benefits, the benefits must be paid not less frequently than monthly. Know This! A notice of claim and proof of loss are the insured's duties; claims forms and the time of payment of claim are the responsibilities of the insurer. The payment of claims provision specifies to whom claims payments are to be made. All benefits are payable to the insured while he or she is living. If the insured is deceased, claims that are pending are paid to the beneficiary. If there is no beneficiary, benefits will be paid to the deceased's estate, unless the insured has assigned the benefits to be paid directly to a hospital or doctor who has rendered services. Some policies allow a provision that gives the insurer the right to expedite payments of urgently needed claim funds and pay up to a specified limit in benefits to a relative or individual who is considered to be equitably entitled to payment, called facility of payment clause.

cancellable (nonrenewable)

This provision allows the insurer to cancel the policy at any time, or at the end of the policy period. There are no guarantees that the insurer will continue coverage at the end of the policy period. The insurer must provide the insured with proper written notice of the cancellation and a refund of any unearned premium paid. If the insured is in the midst of a claim at the time of cancellation, the insurance company must continue to honor the claim. This type of renewability provision is not very common, and is even illegal in many states.

Conforming to state statues

This provision states that any provision of the policy which, on its effective date, is in conflict with the statutes of the state in which the insured resides on that date, is automatically amended to conform to the minimum requirement of the statutes. Although this is an optional provision, most states require that it be included in every health insurance contract issued.

Conditionally renewable

With a conditionally renewable policy, the insurer may terminate the contract only at renewal for certain conditions that are stipulated in the contract. For example, one condition may be that the insured must be employed to collect disability payments. In addition, the policy premiums may be increased. The company may not deny renewal due to claims experience.

insuring clause

the insuring agreement or clause is usually located on the first page of the policy. It is simply a general statement that identifies the basic agreement between the insurance company and the insured. It identifies the insured and the insurance company and states what kind of loss (peril) is covered. Know This! The insuring clause defines the scope of coverage, as well as identifies the rights and duties of each party of the contract.

illegal occupation

this provision states that liability will be denied if the insured is injured while committing an illegal act or is engaged in an illegal occupation.