Health Insurance Policy Provisions, Clauses, and Riders
Multiple Indemnity Rider (Double, Triple)
Some policies may contain riders that provide for payment of double or triple the AD&D based on the cause of death or dismemberment
Optional Provision 9: Conformity with the State Statutes
Any provision of the policy in conflict with the state statutes of the state or territory in which the insured resides will be amended to conform to the minimum requirements of such statutes. This provision ensures policies are in alignment with state laws.
Required Provision 3: Grace Period
A grace period of at least 7 days for weekly premium policies, 10 days for monthly premium policies, and 31 days for all other policies will be granted for the payment of each premium falling due after the first premium, during which grace period coverage will continue in force
Lifetime, Annual, or Per Cause Maximum Benefit Limits
A policy may set a limit on all or certain benefits on a lifetime, annual, or per cause basis. Once the insurer has paid benefits reaching or exceeding the limit, the insurer is no longer obligated to pay for those benefits. The policy must state any benefit with limits, the amount, and the period of limitation.
Guaranteed Insurability Rider
Aka future increase option Can be attached to disability income policies because the benefit amount is fixed, so costs remain level. Allows insured to purchase additional disability income coverage at future dates regardless of insurability Specifies the date and amount of additional coverage and may be subject to other limitations, depending on state and policy
Conditionally Renewable
Allow the insurer the right to not to renew the contract for a reason specified in the policy. Premiums CAN be increased. Pending claims are eligible for payment regardless of whether or not a policy is renewed.
Optional Provision 7: Unpaid Premium
Any premium due and unpaid will be deducted from the payment of claim
Cancelable and Term
Cancelable = allow the insurer to cancel the policy at any time (some states require 30 days notice), as long as the insurer returns all unearned premiums. Does not limit, exclude, or any other way affect the processing of claims for the period in which coverage was effective. Term policies are only effective for a short period, after which the insurer cancels the policy (i.e. travel accident)
Required Provision 8: Time of Payment of Claims
Claims other than those providing periodic payment are payable immediately upon receipt of written proof of loss. All accrued claims for losses providing periodic payment will be paid at least monthly and any balance remaining upon termination of liability is payable immediately upon receipt of written proof
Coinsurance and Copayments
Coinsurance = the agreed upon proportions for which the insurer and insured share payment of certain benefits or services under the policy coverage. Usually 80% for insurer and 20% for insured. Must state what benefits or services are subject to coinsurance and the proportion for which each party is responsible. Copayments = payments the insured makes for benefits or services provided by the policy coverage. "Copays" may be made to the insurer or the medical personnel or facility, depending on the policy. Policy must state the amount for each copayment for benefits and services under the policy coverage. Usually small dollar amounts like $5 to $40
Intoxicants or Narcotics
Consumption of alcohol or illegal drugs is a common exclusion in most accident and health insurance policies. Insurer is not liable for any loss or injury in consequence of the insured's being intoxicated or under the influence of any narcotic, unless prescribed by a physician
Required Provision 9: Payment of Claims
Death benefits are payable to the designated beneficiary according to the policy provisions. If there is no such designation or provision, the indemnity is payable to the estate of the insured. Any other accrued claims unpaid may be paid to the beneficiary or the estate. All other indemnities are payable to the insured unless the designated beneficiary is the medical provider that provided medical services. The facility of payment clause is optional and may be included in the Payment of Claims provision. The provision states that benefits are payable to an individual who is related to the deceased insured by blood or marriage. The limit of the amount is usually less than $3,000
Consideration Clause
Describes the promises exchanged between the insured and the insurer as evidenced by the payment of premiums and statements made by the insured in the application, and the insurer's promise to pay benefits under the terms of the policy Usually on the policy face in the frequency of premium payments provisions
Right to Examine (Free Look)
Each insurance policy must provide notice that during the period of 10 days from the date of delivery to the policyowner, such policy may be returned for cancelation to the insurer. Insurer will refund all premiums paid, including any policy fees or other charges, and the policy will be deemed coid as if no policy had been issued. Most states require by law that individual health insurance policies have a free look period
Required Provision 1: Entire Contract; Changes
Entire contract between the parties consists of the policy, any endorsements, and the application, if attached. Change must be made by the executive officer of the insurer with the consent of all parties to the contract. No agent has the authority to make the changes to a policy
Impairment Rider
Exclude coverage for a specific condition that would otherwise be covered under the policy. Often attached when the insured has an existing or chronic medical condition
Guaranteed Renewable
Guarantees continuation of coverage for the insured until the insured reaches a specified age, as specified in the policy, but provides the insurer the right, at the time of renewal of policy, to make changes in premium rates by classes of insureds, not individually. Premiums can be increased on policy anniversary dates. Insurer can only cancel or refuse to renew for failure to pay premium payments. Typically cannot be renewed past age 65 because then they are eligible for Medicare
Required Provision 4: Reinstatement
If a policy lapses for failure to pay premiums and the insurer does not require and application to reinstate the policy, the insurer will reinstate the policy upon payment of subsequent premium. If the insurer requires an application to reinstate the policy, a person must submit and application, which the insurer may approve or deny. May also require the insured to pay a maximum of 60 days of back due premiums and provide proof of insurability. Insurer must issue a conditional receipt to the applicant. Insurer will reinstate the policy upon the 45th day after the date of conditional receipt, unless the applicant is denied. The reinstated policy will cover accidents immediately upon reinstatement but will not cover sickness until 10 days have passed after reinstatement
Optional Provision 3: Other Insurance with this Insurer
If an insured has accident or sickness policies with one insurer which total indemnity for certain type(s) of coverage exceeds the policy's maximum, the excess insurance will be void and all premiums paid for such excess coverage will be returned to the insured's estate. This prevents the insured from making profit by seeking medical care and filing claims (over-insured)
Optional Provision 5: Insurance with other Insurers - Not Expense-Incurred
If the insured has other valid coverage providing benefits on the same loss not on a basis other than expense-incurred and the insurer was not given written notice prior to the loss, each insurer is only responsible for proportionate share of the loss, and the insurer will return premiums on a pro rata basis
Optional Provision 4: Insurance with other Insurers - Expense-Incurred
If the insured has other valid coverage providing benefits on the same loss on an expense-incurred basis and the insurer was not given written notice prior to the loss, each insurer is only liable for the proportionate share of the loss, and the insurer will return premiums on a pro rata basis
Coordination of Benefits
If the insured is covered by more than one policy for the same condition or benefit, the coordination of benefits provision defines the method for determining which insurance company is the primary insurer and which is the secondary. The pimary is repsonsible for the payment of benefits according to the policy coverage and limits, the secondary is responsible for the payment of the remainder up to its limits. Situation occurs when children are doubly covered by the insurance policies of both working parents or in the case of a parent's custody or obligation to health care expenses coming in question
Optional Provision 1: Change of Occupation
If the insured is injured or contracts a sickness after changing occupations to one classified as more hazardous than that stated in the policy, then the insurer must only pay the indemnities provided in the policy as the premium paid would have purchased at the rates and within the limits fixed by the insurer for such hazardous occupation. If the occupation is less hazardous than that stated in the policy, the insurer will reduce the premium rate accordingly and will return the excess unearned pro rata premium from the change in date of occupation or the policy anniversary date, whichever is more recent. Particularly important in disability income policies in which the insured receives a portion of his earnings due to disability
Optional Provision 2: Misstatement of Age
If the insured's age has been misstated, all amounts payable under the policy will be modified to that which the premiums would have purchased at the correct age. Does NOT void the policy, the benefits are just adjusted accordingly
Usual, Reasonable, and Customary Charges
Insurer pays an amount for each treatment or procedure based on the usual, reasonable, and customary charge for that geographical area. If the policy uses this term or another similar term, it must be defined.
Transplants
May be offered in some insurance policies. May be included in the policy coverage, or added as a rider. Terms of coverage vary from policy to policy
NAIC Model Health Insurance Policy Provisions
NAIC developed the Uniform Individual Accident and Sickness Policy Provisions Law (aka model health insurance policy provisions) All stated have adopted the NAIC model laws Provide standardization for all individual health insurance policy provisions and identify the rights of the insurer and policyowner 12 mandatory provisions and 11 optional provisions Mandatory = incorporated into all individual health insurance policies Optional = included at the discretion of the insurer
Required Provision 11: Legal Actions
No legal action may be brought to recover on the policy until 60 days after written proof of loss is provided to the insurer. No legal action may be brought after 3 years (in some states 2 years) after the time written proof of loss is required to be provided to the insurer.
Occupational vs. Nonoccupational Coverage
Occupational coverage = provides for the payment of benefits for sickness or injury of the insured that occurred at work Nonoccupational coverage = excludes any conditions resulting from job-related activities. Common for individuals with hazardous or extremely dangerous careers
Recurrent Disability
Occurs when the insured again becomes disabled from the same or related event of condition that caused the prior disability. Policies must state the terms for or whether a recurrent disability is considered an existing or new claim, as well as, any waiting or elimination periods associated with payment of benefits.
Participation on a Felony
Often exclude coverage for sickness or injury of insured resulting from commission or attempt to commit a felony. Criminal conviction is required to exclude coverage
Act of War
Often exclude coverage for sickness or injury resulting from an act of war. Terrorist attack = form of undeclared war
Preexisting Condition
Often exclude or limit coverage for preexisting conditions, usually by requiring a probationary or waiting period before coverage will apply. Most states limit it to 6 months-2 years
Military Suspense Provision
Policies containing a military service exclusion or provision for suspension of coverage must state whether premiums are reduced or refunded or coverage is suspended during the period of service.
Required Provision 2: Time Limit on Certain Defenses; Incontestability
Policy incontestable and cannot be voided or claims denied after 2 years (3 years in some states), except in cases of fraud. The following defenses may not be used after the incontestable period for voiding a policy or denying or reducing a claim: -Misstatements, except fraud, made by a policyowner in the policy application -Sickness or physical condition, other than those specifically excluded in the policy, that existed prior to the date of coverage of the policy Preexisting conditions cannot be excluded 2 years from the date the policy is in force
Preauthorization or Preadmission Certificate
Policy may require that the insured or medical provider obtain approval from the insurer before performing a medical procedure. Benefits or services which require preauthorization are payable only upon obtaining approval. Policy must state what types of benefits or services require preauthorization and the process of obtaining approval from the insurer
Period of Time for Renewal
Policy must state in the renewal provision the period of time provided to the insured to renew coverage. Depending on the policy and the state, the insurer may require the insured to renew coverage by submitting an application to the insurer or a payment of the premium after the expiration date of the initial policy.
Preexisting Conditions
Protect the insurance company from adverse selection. Preexisting conditions = conditions or the existence of symptoms for which medical advice, care, diagnosis, or treatment was recommended or received within no more than 6 months before the date of the enrollment of the policy. Insured must disclose preexisting conditions on the application, and the insurer must state limitations and exclusions for the payment of benefits of preexisting conditions.
Optionally Renewable
Provide the insurer the right not to renew the contract for any reason. Can only be non-renewed on a policy anniversary date or premium due date. Premiums can be increased and pending claims are eligible for payment regardless of whether or not a policy is renewed.
Waiver of Premium
Provides for the continuation of coverage without payment of premiums if the insured becomes totally and permanently disabled.
Noncancelable
Provides the insured the right to continue coverage by making timely payment of premiums. Insurer cannot make changes to this type of policy without consent from the insured. Renewability provision is the same as the guaranteed renewable except that premiums cannot be increased. Benefits are not affected by inflation
Policy Face
Provides the name of the insurer and insured, a summary of the policy coverage, conditions and exclusions, and the term of the policy, with expiration date. The face also states whether or not and how the policy may be renewed.
Deductibles
The amount owed to the insured for benefits or services received before the insurer will pay benefits. Must state the amount of each deductible for benefits or services under the policy coverage
Required Provision 10: Physical Examination and Autopsy
The insurer AT ITS OWN EXPENSE has the right and opportunity to examine the person or autopsy of the insured when reasonably required while a claim is pending. The insurer has the right to have an autopsy performed on the insured if not prohibited by law
Optional Provision 11: Intoxicants and Narcotics
The insurer is not liable for any injury or loss in consequence of the insured's being intoxicated or under the influence of any narcotic, unless administered under the advice of a physician
Optional Provision 10: Illegal Occupation
The insurer is not liable for any loss to which a contributing cause was the insured's commission of attempt to commit a felony or to which a contributing cause was the insured's being engaged in an illegal occupation
Optional Provision 8: Cancelation
The insurer may cancel the policy at any time by written notice delivered to the insured stating cancelation is not effective until at least 5 days later. After the policy has continued beyond its original term, the insured may cancel the policy at any time by written cancellation stating it is effective upon receipt or later. In the event of cancelation, the insurer must return unearned portion of premiums paid. If the insured cancels, the earned premium is calculated on a short-rate basis. If the insurer cancels, the unearned premium will be computed pro rata. Cancelation has no effect on any claim prior to the cancelation effective date. Pro rata return of premium is used when the insurer cancels a policy and means the insurer's earned premium is kept, and the unearned premium is returned to the insured. Short-rate return is used when the insured cancels a policy and means the insurer is permitted to keep the earned premium and a portion of the unearned premium. The balance of unearned premium is returned to the insured.
Insuring Clause
The insurer's promise to pay benefits. Typically on the policy face. States the scope of coverage, the promise to pay benefits under the terms of the policy, and any definitions required by law. Typically contain the statement "benefits are subject to all provisions, conditions,
Required Provision 6: Claim Forms
The insurer, upon receipt of the notice, must furnish the forms for filing for proof of loss. If the forms are not provided within 15 days, the claimant will be deemed as having complied with the policy's requirements for proof of loss upon submitting written proof of the occurrence, as well as the character and the extent of the loss for which claim is made
Elimination Period
The period of time from which the accident, illness, or disability begins, until the benefits are paid. Benefits are NOT paid during the elimination period. Do NOT have to be consecutive. For each benefit that has an elimination or waiting period, the policy must state the terms of the period before the benefits become payable. Common in disability income and long-term care policies
Benefit Payment Clause
The provision that describes how and when benefits are paid. Disability policies generally make periodic payments of disability income benefits, while hospital, medical, and accidental death and dismemberment policies make lump-sum payments
Probationary Period
The time between the effective date of the policy and the date coverage begins for all or certain physical conditions. Protects the insurer from paying claims caused by an insured's preexisting conditions. This prevents insurers from "buying a claim"
Optional Provision 6: Relation of Earnings to Insurance - Average Earnings Clause
The total monthly amount of loss of time benefits may not exceed the amount of monthly earnings of the insured at the time disability began or the average amount of monthly earnings for the previous 2 years, whichever is greater. May not reduce the total monthly amount of benefits payable to less than $200 Prevents the insured from malingering (intentionally staying disabled to receive disability income benefits)
Eligible Expenses
The types of benefits or services provided under the policy coverage. Policy must state the types of benefits or services covered and the conditions and limitation on the coverage
Required Provision 12: Change of Beneficiary
Unless the policyowner makes an irrevocable beneficiary designation, the right to change beneficiary is reserved to the policyowner and does not require the consent from the beneficiary. If it is irrevocable, the beneficiary must consent to any policy changes.
Assignment
Used in medical expense insurance. Means a transfer of benefits from the policyowner to the medical provider. Insurer benefits directly to medical providers
Required Provision 5: Notice of Claim
Written notice of claim must be given to insurer within 20 days of the loss, or as soon as reasonably possible. Notice given by or on behalf of the insured or beneficiary to the insurer or any authorized agent will be deemed as proper notice.
Required Provision 7: Proof of Loss
Written proof of loss must be provided to the insurer within 90 days after the date of loss. Failure to furnish proof does not invalidate or reduce the claim IF it was not reasonably possible to give proof within such time, as long as it is provided in a reasonably possible timeframe. In no event, except in absence of legal capacity, may proof of loss be submitted later than 1 year from the date proof of loss was initially required