Chapter 12 Individual Policy Provisions

According to the Proof of Loss provision, an insured must furnish the insurer with written evidence of a claim within: A 45 days of the loss B 60 days of the loss C 90 days of the loss D 30 days of the loss

C Proof of loss is required within 90 days of the loss.

Legal Action

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

Payment of Claims

Death benefits are paid to the beneficiary; other benefits may be paid directly to provider of services or the insured

Out-of-Area Benefits and Services

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

Policy Renewal Provisions

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

Physical Exam and Autopsy

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

Noncancellable

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

Managed Health Care usually contains the following characteristics?

*Controlled access to providers *Comprehensive case management *Preventive care *Risk sharing *High-quality care *Does not authorize cosmetic surgery *Gatekeepers (Primary Care Physicians) *Hospice Programs

TEST TIP Know the 3 parts to the entire contract:

- The policy - The riders - Any attached papers such as the application

Cancellable

Insurer or insured may cancel at any time (has lowest premium

Intoxicants and Narcotics

Liability is denied if injury is caused by the insured being intoxicated or under the influence of drugs unless administered on the advice of a physician. When insurers underwrite alcohol abuse, they may be increasing their exposure to risk.

illegal occupation/act

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

Period of Time (Nonrenewable)

Life of the policy is expressed and cannot be renewed. If the covered medical services were provided while the policy was in force and just before policy termination, the insurance company must pay the claim as any other claim.

Cost Containment in Health Care Delivery - Case Management Provisions

Managed Health Care has been implemented by HMO's and PPO's to contain or reduce costs associated with health care delivery.

Preventive Care

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

Time Limit on Certain Defenses (Incontestable)

No statement or misstatement (except fraudulent misstatements) made in the application at the time of issue shall be used to deny a claim after the policy has been in force (usually for 2 years). If applicable, additional information about this topic is presented in the state law section. False statements on the application may exclude coverage when material to the risk. In other words, if the insurer had the correct information at the time of application, they would not have issued the policy in the first place.

Emergency Services

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

Alternatives to Hospital Services

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

Consideration clause

Payment of the first premium (including the stated frequency) and statements in the application are the applicant's consideration. The insurer's consideration is the promise to pay within the contract terms.

Rights of Conversion

Permits children who become adults, to maintain coverage to a specified age, usually 19 - 23 if the child is a full time student. Once the student reaches this age, they are provided the right to exercise this conversion privilege, which allows them to purchase an individual policy without proving insurability.

Accident (injury)

Policies may define an accident or an injury using one of the following definitions: 1. Accidental Bodily Injury (result) 2. Accidental Means( cause)

Conditionally Renewable

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

waiver-of-premium provision

Premiums are waived by the insurer after a stated time period (usually 3 to 6 months). Premiums are not paid by the insured until such time he/she has recovered from the disability; then premiums are resumed at the same mode and amount.

Proof of loss

Proof of loss is required within 90 days of loss or in the shortest period of time possible, but not to exceed 1 year unless the insured suffers legal incapacity.

Coordination of Benefits

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

Assignment

Redirecting policy benefits to be paid directly to a health care provider instead of to the policyholder/insured. This provision permits the doctor or hospital to receive payment instead of the insured. Many Medical Expense plans are set up on an indemnity basis whereby they reimburse the insured for medical expenses.

Restatement

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

Optionally Renewable

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

Guaranteed Renewable

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

Multiple Indemnity Rider

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

Grace Period

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

Cancellation

The insurer may cancel with written notice to the insured. Notice of 5 to 31 days may be required. Unearned premium is refunded on a pro rata basis. The insured may cancel after the initial policy term with written notice to the insurer at any time. The unearned premium is returned on the short rate basis, which includes a cancellation fee.

Accidental Bodily Injury (result)

The less restrictive definition, it requires only that an injury/claim be unintended and unforeseen.

Utilization Review

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

Unpaid premiums

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

Insuring clause (Benefit provision clause)

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

Guaranteed Insurability Rider

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

Nonoccupational Expenses

A policy that pays for injury and illness off the job only.

Occupational Expenses

A policy that pays for injury and illness on and off the job.

Retrospective Review

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

Probationary Clause

A specified period of time before coverage goes into effect for specified conditions (preexisting conditions). This is designed to protect the insurer for losses due to a sickness that immediately occur after the policy is issued. Losses due to an accident are covered immediately.

Elimination Period Provision

A type of (time) deductible. A period of days that must expire after onset of an illness or occurrence of an accident before benefits will be payable. The longer the elimination period chosen, the lower the cost of coverage.

Time of Payment of Claims

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

Right to examine (Free look)

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

Change of Beneficiary

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

How may the premium in a guaranteed renewable policy be increased? A It may be increased according to the increased risk of the insured's health status B It may not be increased at all C It may be increased only in relation to the number of claims paid in the past year D It may be increased for all similarly situated insureds based on age

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

Claim form provision

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

Accidental Means (cause)

The more restrictive definition, requires both the injury and the cause of the injury to be unintended and unforeseen. This definition is not allowed in some states.

Precertifcation

The physician may submit claim information prior to treatment to know in advance if the procedure is covered and at what rate benefits will be paid.

Entire Contract Clause

The policy, a copy of the application, and any riders constitute the entire contract. Only the applicant may alter statements on the application. Only an executive officer of the insurer, not an agent, can make changes to the policy. Changes in the contract can be made only with the insurer's written consent.

Managed Health Care

Used in medical expense plans attempting to contain costs by controlling the behavior of participants

What is the purpose of a probationary period in a disability income policy? A It allows the insurance company to avoid illness claims made in the first 10-30 days of the policy B It allows the insurance company to avoid any claims due to accidental causes in the first few days of the policy C It allows the insurance company to avoid all claims made in the first 10-30 days of the policy D It allows the employer to fire the employee up to 90 days after being hired without liability for any disability which may have occurred

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

Rank the following renewability provisions in order from least favorable to most favorable in terms of benefit to an insured: A Cancellable, conditionally renewable, guaranteed renewable B Guaranteed renewable, optionally renewable, conditionally renewable C Guaranteed renewable, noncancellable, cancellable D Noncancellable, guaranteed renewable, optionally renewable

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

In which ONE of the following situations would an insurance company most likely use an impairment rider? A G is looking to obtain a health insurance policy, but is concerned about a current heart condition B S is looking to buy a disability income policy, but is unemployed C F has cancer and is looking to buy a cancer only policy to help with the cost of treatment D T, age 70, wants to buy an individual disability income policy, but is retired and receiving home health care Good Job!

A An impairment rider excludes coverage for a specific ailment or condition that otherwise would be covered, so the applicant is still able to obtain coverage for other health care needs.

Which of the following is not an example of a cost containment measure? A Replacement B Utilization review C Mandatory second opinion D Precertification for cancer therapy

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

All of the following are required uniform provisions in individual health insurance policies EXCEPT: A Change of occupation B Grace period C Reinstatement D Entire contract

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

Comprehensive Case Management

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

Prospective Review

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

Concurrent Review

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

Eligible Expenses

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

Impairment Rider

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

Non-Emergency Hospital Pre-authorization Admission

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

Conformity with State Statutes

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

Preeexisting Condition provision

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

An individual is approved for a health insurance policy effective March 1. On March 4, the insured breaks his arm playing basketball with some friends, is treated at the local emergency room, and submits a bill for $2500 to his insurance company. On March 9, the insured decides to cancel the insurance and requests a refund of the $3000 annual premium he has paid. What will the insurance company do? A The company will send a short rate refund because the insured requested the cancellation B The insurer will refund the insured's $3,000 and has no responsibility to pay his claim C The company will only refund $500 because it is liable for his $2,500 claim D The insurer will not cancel the policy because the insured has already filed a claim

B A policy cancelled during the free look period is void from the beginning, and no claims are payable. The Insured must receive a full refund of the premium he paid, and must also retain liability for 100% of the expense for his broken arm.

The Time Limit on Certain Defenses generally terminates the insurance company's right to deny a claim more than _________ years from the date of policy issue if a misstatement was made on an application. A 10 B 2 C 1 D 5

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

Which statement is correct with regard to notifying the insurance company of a loss under a disability policy? A Notice of claim must be filed not less than 60 days nor more than 1 year following the loss B Notice of claim must be filed within 20 days of the loss, or as soon as possible C The insured's doctor or the hospital must notify the insurance company of a claim D Notice of a claim may be filed at any time within one year of the loss

B Unless reasonably prevented from doing so, an insured must notify the insurance company of a claim in writing within 20 days of the loss.

Misstatement of Age

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

If an insured changes occupations and the new occupation is in a higher risk class than the former occupation, what does the change of occupation provision allow the insurance company to do in the event a disability claim is presented, but the insured failed to inform the insurer of the change? A The insurer must pay the claim according to the contract, as stated in the insuring clause B The insurer may deny the claim due to misrepresentation C The insurer will reduce the benefit proportionally in relation to the actual premium paid based on the higher risk classification D The insurer may first collect the past due higher premium before approving the claim

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

Change of Occupation

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

Other insurance with this insurer

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

Notice of claim

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

Ambulatory Outpatient Care

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

Mandatory Uniform Provisions - Also Known As Required Provisions

These provisions must, by law, be in every individual policy. Wording may be changed, but any variation must be at least as favorable as the original wording and no provision may be deleted (unless it has no applicability to the policy). No additional provisions may be included which otherwise restrict or modify a uniform provision. These provisions are designed to protect the insured's interests

First Dollar coverage

This provides that coverage will begin paying for a covered loss starting with the first dollar and no deductible will apply.

Military Suspension Provision

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

Mandatory Second Surgical Opinion

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