Life and Health Insurance Ch 9

These required uniform provisions include:

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

The reinstated policy will immediately cover accidents which occur after the reinstatement date. Sickness or illness will not be covered until

10 days after the policy is reinstated.

When an insured suffers a covered illness, she must supply notice of loss to the insurer. Once this notice is received by the insurer, it must send a proof of loss form to the insured within:

15 days

A policyowner may have his policy reinstated after a lapse if a reinstatement application is completed and approved. Once this application is submitted, an insurer must notify the insured of its approval or declination within:

45 days

Coinsurance Provision clause stipulates that the insurer and policy owner will share incurred expenses. After a deductible is satisfied, most policies are characterized by a 80/20 coinsurance clause. The insurer pays

80% of remaining expenses and the policyholder 20% (after the deductible is satisfied). Numerous policies today possess coinsurance clauses of 75/25, 60/40, and 50/50. The greater the insured's coinsurance amount percentage, the lower the premium.

Written proof of loss must be supplied to an insurer within what period of time?

90 days from the date of the loss

Paul applies for a health policy on February 5th. Underwriting approves the application on February 12th. The policy is delivered by the agent on February 15th. When does the free-look period end?

February 25th

What type of disability income policy may have its premiums increased for an entire class of policies?

Guaranteed renewable

All health policies include a renewability provision. Which of the following provides an insured with the most advantageous provision?

Noncancellable

All of the following are required uniform health insurance provisions:

Physical examination and autopsy; Notice of claim; Time of payment of claims

Recurrent disablility example, assume Bob owns a disability income policy paying $1,000 per month with a 30 day waiting period. He becomes totally disabled and is out of work for five months. He then returns to work for three months but suffers a relapse of the same disability and is out of work for another four months. How many months of benefits will be paid?

The answer is eight months.

The policyowner's consideration is the:

The premium paid and representations on the application

Entire Contract -

This provision states that the policy, including any endorsements, riders, amendments or any other attached papers, plus a copy of the original application constitutes the entire contract. It is the identical provision that appears in a life insurance policy.

The waiting period that must be satisfied before premiums will be waived under an accident and health contract is:

Three months

Statements made by an applicant on a health insurance application are contestable by an insurer for an initial period of:

Two years

Change of Occupation, this optional provision states that either a benefit or premium reduction will take place when an insured changes his or her occupation. This provision generally appears in

a disability income contract. For example, if the insured changes from a less hazardous to a more hazardous occupation (i.e., secretary changes to sky-diving instructor), the policy premium will remain the same but the monthly income benefit will be reduced.

Notice of Claim mandatory provision, the policy owner must furnish the insurer with

a notice of claim within 20 days after a loss occurs (or as soon as reasonably possible). The policy owner may notify the insurer or the producing agent of the loss (i.e., accident or illness) in written form, in person or by phone.

Relation of Earning to Insurance, This provision appears in disability income policies. It protects an insurer against

an insured purchasing more monthly benefit in relation to his or her monthly income. Normally it is only included in non-cancelable or guaranteed renewable policies.

Claim form provision states once the insurer receives notice of claim from the policy owner, it must send a claim form to the policy owner within 15 days. If the insurer does not send out claim forms to an insured in a timely fashion, the policy owner may

file an unfair claim settlement practice with his or her State Department of Insurance. In addition, the policy owner is permitted to send in proof of loss in any reasonable form.

Other Insurance in This Insurer provision states that if the insured is already covered by a policy with one insurer but is also covered by another plan with the same company, only the

maximum benefit is payable. The purpose of this provision is to prevent an insured from profiting if he or she is covered by two policies with the same insurer.

Modes of Premium Payment provision states the policyholder may select the method by which to pay annual premiums including

monthly, quarterly, semi-annual or annual. The annual mode is the least expensive mode of premium. The monthly mode is the most expensive.

Subrogation provision gives the medical plan, or the organization providing benefits, the right to

recover from a third party who is responsible because of negligence for a covered individual's injury and a claim payment has been made.

Most reinstatement periods are three years. This means that an insurer may permit reinstatement of a policy for up to three years after the policy lapse. Some States allow

reinstatement periods of five years.

With the Change of Occupation provision, If the insured changes from a more hazardous to a less risky occupation, the benefit provided will

remain constant and the premium will be reduced.

Conditionally Renewable — According to this provision the insurer may

terminate the contract by not renewing it under certain conditions stated in the policy. There is a guarantee of continuance but not to the extent of the noncancelable or guaranteed renewable policies (i.e., age 65).

Over-insurance is a problem that may exist with regard to group and individual health insurance policies. Insurance companies attempt to control over-insurance by including a coordination of benefits (COB) provision in their policies. This provision states

that benefits may not be paid for medical expense amounts reimbursed by other policies.

Insurance with other insurer provision is rarely included in policies today. It is identical to the previous provision except

that it applies to benefits provided on an "other than expense incurred basis."

In the situation of a Misstatement of Age or Gender, If the insured's age is understated, the monthly benefit will be reduced. If overstated,

the benefit will be higher than the one appearing in the policy.

Subrogation example, Jack is injured in an auto accident caused by Jill. Jack's hospital and doctor's bills are paid by his group health insurance plan. The subrogation provision in this policy states that

the health insurer has the right to recover whatever claim payment it made from the auto policy covering Jill since she was responsible for Jack's injuries (or if Jill has no auto policy, from Jill herself).

Intoxicants and Narcotics clause relieves the insurance company of liability for losses if

the insured was under the influence of non-prescribed drugs or alcohol when the loss occurred. Physician prescribed drugs would not fall under the realm of this clause.

Physical Examination and Autopsy provision allows

the insurer, at its own expense, the right to require a physical examination or autopsy of an insured prior to the issuance of coverage or the payment of benefits.

Insuring clause provision is a paragraph which provides a summary of the coverage provided by the policy. It is usually located on the face page of the policy and identifies:

the parties to the contract (i.e., insurer and policy owner); the benefit to be provided, the annual premium, and the frequency with which they are paid (i.e., monthly), the policy period (i.e., 1/1/15 - 1/1/16); and a beneficiary designation if one is needed due to the inclusion of an accidental death benefit.

Waiver of Premium provision appears in disability income policies and works like its counterpart in the life insurance contract. In other words, if the insured becomes totally disabled for 90 consecutive days the insurer will

waive future premiums due until the insured is back to work. Any premiums paid during the 90 days period will be refunded. Unlike life insurance, there is no additional premium required for this benefit. It is already contained in the policy, in most cases.

Conformity with State Statutes provision reads the same in all policies in which it appears. It reads as follows:

"This clause amends the policy to comply or conform with minimum state requirements." Its title may make it appear to be a required uniform provision but it is not.

As stated in Life Insurance, the coordination of benefits provision "limits total benefits, if the insured is covered by more than one policy, to 100% of covered expenses, regardless of the number of policies involved." In addition, it also designates the order by which the policies will pay. The first policy that pays benefits is referred to as "primary." Other policies that may pay benefits are referred to as

"excess" coverage. Each insurer following the primary carrier pays in a specified order any excess, in order that the total amounts paid will not exceed the total allowable expenses."

Period of Time for Renewal — Some A&H policies have no provision for continuation since they only provide coverage for the

"period of time" stated in the policy. In other words, they are single term (i.e., period) policies providing coverage for a specific period only.

The Consideration Clause states in order for the policy to be legal and enforceable both parties must exchange something of value with one another. The insurer's consideration is its promise to pay a valid claim. The policy owner's consideration is two-fold:

(1) the premium paid and (2) statements (i.e., representations) made on the health insurance application.

Optional provisions may be included in health policies some are only applicable to disability income policies and not major medical plans. These are some of these optional provisions:

Change of Occupation; Misstatement of Age or Gender; Other Insurance in this Insurer;

All of the following are required uniform health insurance provisions, EXCEPT:

Change of occupation

Health insurance policies also contain a renewability provision which stipulate conditions for renewal. There are several renewability provisions available including:

Noncancelable; Guaranteed Renewable; Cancelable; Conditionally Renewable; Renewable at Company's Option; Period of Time for Renewal

Illegal Occupation clause allows an insurer to be relieved of liability for loss if the insured is injured during the commission of a felony or while engaged in any other illegal occupation. In other words, an insurer may deny a claim, void the contract and return any unearned premium to the insured if the latter suffers an injury or illness during the commission of

a felony or any illegal activities (i.e., robbing a bank). Again, if a claim payment has already been made and the insurer later finds that the insured was injured while committing a crime, it will attempt to recover the claim amount previously paid and deny the claim.

With the Misstatement of Age or Gender provision, If an insured misstates his or her age on the health insurance application, the insurer will

adjust benefits under the policy to the amount that should have been provided had the correct age been stated.

Change of Beneficiary provision states the policyholder may change the beneficiary at any time at his or her discretion. However, if the beneficiary is irrevocable, the policyholder cannot change it without the permission of such beneficiary. This provision is included since

an accidental death rider (or AD&D rider) can be added to a disability income policy. The primary beneficiary is the first person entitled to the policy death benefit if the insured dies. The contingent beneficiary receives the face amount if the primary beneficiary has predeceased the insured.

Pre-Existing Conditions provision states that coverage under a health insurance policy will not be provided for any health condition of the insured which existed prior to coverage becoming effective. This provision helps to protect an insurer if

an applicant already knows that he or she is ill or has suffered an injury that has not yet been treated. Most policies include a pre-existing condition waiting period of at least six months. Insurers are generally not permitted to include this provision with a waiting period of more than one year.

Time Limit on Certain Defenses provision stipulates that the representations made by the applicant and recorded on the application are only "contestable" during the initial two years that the health insurance policy is in force. In a life insurance policy it is known as the incontestable clause. Therefore, this provision allows

an insurance company to deny a claim for concealment of material health information if the insurer discovers it during the first two (2) years of the policy's existence. The insurer will void the contract as it would do in a corresponding life policy since the consideration is missing (due to the material misrepresentation of the applicant).

If the pre-existing condition is severe enough, the insurer may issue an impairment rider which will restrict coverage for the illness or injury in question for a period of years or for the life of the policy. This provision allows

an insurer to deny a claim for a health condition existing prior to coverage being provided under a new policy.

Legal Action provision stipulates two important legal limitations. One of these states that no legal action can be brought against an insurer (by the insured) until 60 days after written proof of loss has been furnished to the insurer. In other words, the insurer is allowed this amount of time to pay a legitimate claim. The second part of this provision states that

any suit brought against the insurer by the policy owner must occur within 3 years from the date the proof of loss was furnished

Beneficiary Provision states in cases where an accidental death benefit is added to a health insurance policy, a

beneficiary may be designated. The primary beneficiary receives accidental death proceeds first. A contingent beneficiary receives the death benefit if the primary beneficiary predeceases the insured.

Cancellation provision provides the insurer the right to cancel the contract at any time with at least 5 days written notice to the insured. All claims originating prior to the cancellation will be paid. This clause generally appears in

cancelable contracts. Other renewability provisions included in a policy may supersede this clause.

The recurrent disability provision aids an insurer in determining how and when benefits are payable. If the recurrence occurs within the six month period and the insured goes back out on total disability, benefits will

continue as if the disability had not been interrupted. This is advantageous to the insured since he or she will not have to satisfy another elimination period.

Insuring clause allows an insurer to deny a claim if the policy was purchased after an accident or injury occurred. In other words, the insuring clause stipulates that

coverage is provided only during the policy period. This provision also prevents a claim from being paid by an insurer for any injury or illness that first occurred prior to the inception date of the policy and then "reoccurs" after the policy goes into effect.

Guaranteed Renewable — This provision also states that the policy may not be canceled as long as the premium is paid. Policy benefits, conditions and terms may not be modified nor altered. However, premiums may be

increased but only on an occupational class basis (i.e., all truck drivers) when considering disability income insurance. When considering Medigap insurance, as reviewed earlier, policies are guaranteed renewable on a geographical class basis.

Grace Period- A grace period is included in all policies of health insurance. This period shall be allowed for payment of a premium in default. In other words, a policy will not lapse if the premium is not paid by its due date. Health insurance protection remains in effect during the grace period. If a covered claim arises during this period,

it will be paid but will be reduced by the amount of the premium owed. Most grace periods are 31 days. If a policy is paid with weekly premiums, its grace period will be not less than 7 days. If paid monthly, the grace period will be not less than 10 days

Misstatement of Age or Gender example, assume that an insured owns a disability income policy with a monthly benefit of $500. The annual premium is $100. However, at the time of application the insured stated his age as 25 rather than his actual age of 30. When the insurer uncovers the misstatement it will

keep the premium at $100 but reduce the monthly benefit to $400. This is the benefit that the $100 premium would have purchased at the correct age (i.e., age 30).

Insurance with other insurer provision, If the policy owner possesses duplicate coverage with another insurer on "an expense incurred basis" and does not notify the primary insurer of the other policy, the liability of the insurer is

limited to its proportionate share of the expenses incurred. For example, assume that this optional provision appears in a medical expense plan. If an insurer returns premium to an insured on a pro-rated basis and only pays a portion of medical expenses incurred, it is generally because the insurer has discovered that the insured has duplicate coverage of some sort.

Renewable at Company's Option — This provision states that the insured has

no guarantee of continuance. As long as no or few claims are filed, the insurer will probably renew. If claims are filed the insurer will probably choose to non-renew (on the policy's renewal or anniversary date).

Guaranteed renewable policies may have their premiums increased for a whole class of policies. This type of provision also allows coverage to be renewed up to a specified age, generally age 65. If an insured is covered by a disability income policy and reaches age 65 and they are no longer working, coverage will

no longer be provided by the policy since they attained the specified age of 65. An insured who does not realize this and continues to pay disability income premiums after he or she has retired will be refunded the premium when this is discovered.

Time of Payment of Claims provision states that losses will be paid by the insurer once it receives the written proof of loss. In the case of a disability income claim, benefits must be paid

on a monthly basis, generally within thirty days of receipt of the written proof. If an insurer pays an accident and health claim and later finds that the insured was injured while committing a crime, the insurer will attempt to recover the claim payment (and thereby deny the claim).

Common Accident Provision clause when included in a health insurance policy, is characterized by

one deductible when two or more individuals in the same family are injured in the same accident. Usually each individual would have to satisfy a deductible if this provision is not included in the contract.

Payment of Claims provision states that health insurance claim payments or benefits may

only be payable to the insured. It also allows payment of benefits directly to a hospital or provider of medical services if the insured requests such action. If an accidental death benefit is provided under an AD&D rider, this provision specifies that the policy benefit will be paid to the designated beneficiary.

Free look provision it is mandatory in most States. Like its counterpart in life insurance, it provides the insured with the right to examine the policy for a specified period once it is delivered by the agent. If the insured decides during the free-look period to return the policy to the insurer, he or she may do so and

receive a full premium refund. Most free-look periods are a minimum of ten (10) days. Some types of policies include twenty or thirty day free-look periods (i.e., Medigap). This provision may also be referred to as the "right to examine" provision as well. The free-look period provided generally appears on the face page of the policy.

Recurrent disability clause appears in a disability income insurance policy. It is utilized when an insured becomes totally disabled for a time but appears to recover. However, in the next couple of months the insured suffers a relapse (recurrence) of the same injury and becomes totally disabled again. The later disability would be considered a

recurrence of the initial disability if it occurred within six months after the insured returned to work.

Noncancelable — A noncancelable policy is one that may never be canceled as long as the policy owner pays the premium. In addition, none of the policy's benefits, terms or conditions may be modified nor can there be any increase in premiums. This type of policy is usually

renewable until a specified age (i.e., age 65). It is the most advantageous renewability provision for a policy owner but is also the most expensive.

Proof of Loss provision states that once the policy owner suffers a loss, he or she has 90 days in which to

submit a written proof of loss to the insurer which must be verified by a physician or hospital. A failure to send in written proof of loss within the 90 days will not invalidate the claim as long as it is determined that the policy owner was unable to do so (i.e., coma). A "completed" claim form is generally the written proof of loss supplied to the insurer.

Reinstatement provision stipulates that policies which have lapsed due to nonpayment may be reinstated by the insurer by the acceptance of the overdue premium. In addition, the insurer generally requires proof of insurability as well, whether it be a physical exam or a physician's statement. When a reinstatement application is required, the reinstatement will

take effect when approved by the insurer. However, once the reinstatement application is provided to the insurer, it has 45 days to inform the applicant whether or not the policy has been reinstated. If such notice is not provided, coverage will be automatically reinstated.

Cancelable — A cancelable provision indicates that

the policy may be canceled by the insurer at its discretion at any time for any reason. This is the least advantageous of all renewability provisions. An insurer which issues a cancelable policy may cancel if an insured files too many claims in a policy period.

Owner's Rights provision states that

the policy owner is entitled to all ownership rights under the health insurance contract including the right to select the premium payment mode, to name the beneficiary, to change the beneficiary or assign one's interest in the policy.