Health Insurance Exam

Disability Buy-Out Policy

A business disability buy-out policy is a form of DI policy used for the same reason life insurance is used to fund a buy-sell plan: to provide surviving owners with the funds needed to execute the agreement. If an insured business owner were to become totally disabled, the buy-out policy would provide the funds necessary to buy out the owner's interest in the business.

Patient Protection and Affordable Care Act (PPACA)

Affordable Care Act (ACA)

Individual Coverage Mandate

Beginning in 2014, all individuals are required to obtain health insurance coverage or pay a penalty. The penalty will start at $95 per person for 2014 and increase each year. (It increases to $325 in 2015 and to $695, or up to 2.5 percent of income, in 2016.) Families will pay half the penalty amount for children, up to a cap of $2,250 per family. Individuals may be eligible for an exemption from the penalty if they cannot obtain affordable coverage.q

Employer Coverage Mandate

Employers with 50 or more employees that do not offer a medical plan face a penalty if any of those employees receives a government subsidy, of any form, to buy individual coverage. The penalty amount is up to $2,000 annually for each full-time employee. Moreover, employers who do offer coverage, but whose employees receive tax credits nonetheless, will be subject to a fine of $3,000 for each worker receiving a tax credit.

EHBs

Essential health benefits

health maintenance organizations

HMOs

Annually Renewable Term Life Rider

Many insurance companies permit DI applicants to add a life insurance rider to the policy. Its purpose is to provide a death benefit in the event of the insured's death. It is not necessary for the insured to have been disabled at the time of death for the death benefit to be payable. If available, this rider is typically provided in the form of annually renewable term life insurance.

preferred provider organizations

PPOs

provider-sponsored organizations

PSOs

partial disability

Sometimes called a recovery benefit, the partial disability benefit continues benefit payments, albeit at a reduced level, to insureds that have been on total disability and are returning to work on a partial basis.

Medical Los Ratio (MLR)

The PPACA compels insurers to spend a minimum percentage of premium dollars on providing health care coverage and improving the quality of health care. The MLR ensures consumers that their premiums are spent primarily on health care coverage, and not on insurers' administrative and overhead business costs.

residual disability benefit

Unlike the standard partial disability benefit (which is payable only if the insured is recovering from a total disability), the residual benefit is payable if the insured suffers a less-than-total disability that forces him or her to cut back employment (and earnings). It is intended to supplement the residual income the insured continues to earn.

nondisabling injury provision

a DI policy pays for medical expenses or medical treatment that the insured incurs because of accidental injuries. The policy pays the benefit even if the injury does not produce a sustained disability or a loss of income. The amount payable for medical treatment is usually specified as some percentage of the monthly income benefit that would be paid as a result of disability.

hazards

a condition that increases the number of or the severity of losses

Medicare

a federal government program that provides hospital and medical insurance to people age 65 and older.

preexisting condition

a health condition that existed before an insurance policy was issued and, as such, is not covered for some period of time. It is normally defined as a sickness or physical condition for which medical advice or treatment was recommended by or received from a physician or symptoms existed that would cause a careful person to seek diagnosis, care, or treatment.

coinsurance

a provision in most major medial policies that requires the insured to pay a certain percentage of the covered costs in addition to the deductible, usually 20-30%

term policy

a special class of health insurance written specifically to cover only limited periods, such as six months. People often buy these health insurance term policies to provide insurance for periods between life events.

Medicaid

a state public assistance program (with some federal support) that provides health care benefits for the poor of any age.

deductible

a stated sum of money that the insured must pay before any major medical policy benefits are paid

income replacement policy

a variation of the traditional DI policy. They provide a benefit if the insured becomes disabled, and cannot perform the duties of his or her occupation, and works at another (less demanding) job, and suffers a reduction in income.

other insurance with other insurer

addresses a situation in which an insured has coverage for the same risk and expenses with another insurer and has not notified this insurer of other existing coverage. This provision allows an insurer to prorate the amount of benefit it will pay for an expense-covered loss if another insurer is covering losses from the same event. It keeps the insured from receiving a benefit larger than the loss.

unpaid premium provision

addresses any premiums the insured may not have paid at the time of a claim. In such a case, the insurer can deduct this amount from the total benefit it owes the insured.

misstatement of age provision

addresses the situation in which an insured misstates his or her age on the application for insurance. If this occurs, the insured or beneficiary is still entitled to benefits. However, the benefits payable will be those the insured's premium would have bought at his or her actual age.

conformity with state statutes provision

addressing any of its provisions that differ from state law. (The state in question is the one in which the insured lives and in which the policy is issued.) Such a provision will automatically be changed to meet the minimum requirements of the law.

cost-of-living adjustment (COLA)

adjusts the benefit payments according to changes in the consumer price index (CPI). During times of inflation, the adjustment increases the payments. If the CPI is negative, indicating that inflation has reversed, then the monthly income is adjusted downward. However, the monthly income for total disability will never be lower than the initial disability income amount stated in the policy.

reinstatement provision

allows a policyowner to reinstate a policy that has lapsed. The policy is considered to be lapsed if the premium was not paid by the end of the grace period.

future increase option rider

allows the insured to buy extra coverage under the policy without proving evidence of insurability. Also called a guaranteed insurability rider, it appeals to those who expect their earnings will increase. The option to buy extra insurance under this rider usually has to be chosen by a specified age, such as 45 or 55.

cancellable

allows the insurer to cancel or end the policy at any time simply by providing written notification. The insurer must also refund any advance premiums paid before canceling the policy. Cancellable policies also allow for premium increases.

illegal occupation provision

allows the insurer to deny liability when the insured's claim arises from the insured's participation in an illegal activity.

physical examination and autopsy provision

allows the insurer to require the insured to take a physical exam during the claims investigation process, at the insurer's expense. This is especially common with disability income claims. If the claim is related to the insured's death, this provision also allows the insurer to order an autopsy, also at the insurer's expense, to determine the cause of death.

primary insurance amount (PIA)

amount of the worker's monthly retirement benefit at full retirement age. It is also the amount payable upon disability. based on the amount the person earned over his or her working years and an index to determine the person's average monthly earnings adjusted for inflation.

other insurance with other insurers provision

applies to coverage with multiple insurers of which the primary insurer had prior knowledge. Among the many coverages the insured may have is that from a state's workers' compensation program. This provision covers losses on other than an expense-incurred basis. Under this provision, the insurer must return premiums that are more than the amount associated with its proportion of prorated benefits.

relation-of-earnings to insurance

applies to disability income insurance policies. Its intent is to avoid overinsurance by reducing the policy's income benefit amount if the insured has more insurance benefit income than actual income at the time of disability.

change of beneficiary provision

applies to those cases where the policy provides a death benefit and a beneficiary has been designated. This provision states that the policyowner has the right to change beneficiaries. However, a beneficiary can be changed only if he or she had been designated revocable.

managed care plans

are systems of health care delivery that combine features of a health care provider and an insurer. In effect, premiums paid into a managed care plan are viewed as prepayment for medical care services and treatment to be received through the plan's network of providers. Plan members share in the cost of care through their premiums and co-payments collected at the time of service. Managed care providers include HMOs and preferred provider organizations PPOs.

catastrophic plans

available to persons who are younger than 30 years and cannot afford any other health insurance, or who are willing to accept minimal coverage in exchange for a high deductible and a low premium.

Reimbursement contracts

base the amount of benefit on the loss that is actually incurred. For instance, a policy that pays 80 percent of the covered loss is a reimbursement contract. Medical expense policies are reimbursement contracts, as are disability income policies (which reimburse lost income).

health insurance

broadly covers many risks, such as the loss of income because of disability; the costs of medical care and treatment; and the costs of care not covered by government plans

comprehensive coverage

covers a variety of conditions or medical services.

errors and omissions, or E&O, insurance

covers injuries and damages that occur due to professional services a producer rendered or failed to render.

change of occupation provision

covers two scenarios. One is when an insured changes his or her occupation to one that is more hazardous. In this case, the insurer's risk increases. Therefore, the provision allows the insurer to reduce benefits. The other scenario is if the insured changes to a less hazardous occupation. In this case, the provision requires the insurer to reduce the premium rate.

legal actions provision

defines the period of time during which the insured can take a legal action against the insurer because it didn't pay a claim to the insured's satisfaction. Under this provision, the insured cannot take legal action against the insurer until at least 60 days after the insured provides proof of loss to the insurer. Moreover, the insured cannot take legal action against the insurer more than three years after proof of loss was required. In other words, the period during which legal action can be taken ranges from 60 days after proof of loss has been provided to three years after proof was provided.

renewability provision

defines the rights of the insurer to increase premiums or cancel the policy. It also defines the policyowner's right to renew the policy's coverage beyond the current coverage period. Types of renewal provisions are noncancellable, guaranteed renewable, conditionally renewable, optionally renewable, and cancellable.

Business overhead expense (BOE) insurance

designed for the small business owner who is concerned about covering the overhead expenses of keeping the business running should he or she become disabled. A BOE policy covers scheduled overhead costs, such as rent, utility bills, insurance, and taxes that can destroy a small business if the owner becomes disabled and unable to run it. Even the salaries of the owner's employees can be covered. Only the owner's salary cannot be covered with a BOE policy; the owner would need his or her own DI policy for that purpose.

payment of claims provision

details how claims are paid out. If loss of life is involved, then the insurer pays the claims to the insured's beneficiary. If the insured did not specify a beneficiary, then the insurer pays the claim to the insured's estate. The insurer must also pay claims that are not death benefits.

cancellation provision

enabled an insurer to cancel the policy at any time with 45 days' notice. The 45-day notice is also required if the insurer decides not to renew the policy or to change the premium rate. If the insured did not pay the premium and the insurer canceled the policy as a result, then the insurer must give ten days' notice to the insured.

return of premium rider

enables the insured to get back part of his or her premium payment if he or she has no DI benefit claims against the policy. Likewise, if the insured's claims are below a certain level, he or she can get back part of the premium. With the typical return of premium rider, the policyowner pays a premium in addition to that required for the disability benefit. That additional premium plus the interest the insurer pays and credits to the additional premium creates a cash value. This cash value is payable to the policyowner on dates specified in the policy. The total of any claims previously paid are deducted from the cash value.

intoxicants and narcotics provision

excludes insurer liability if a covered loss results from intoxication or the illegal use of narcotic drugs.

waiver of premium rider

excuses the insured from paying the policy's premium during periods of total disability. Typically, the insured is required to pay the premium during the elimination period or for some period—such as six months during disability—before premiums are waived. If, after that period, the insured remains disabled, then the waiver will be effective back to the first day of disability. Any premiums paid during the elimination period are refunded to the owner. Future premiums are waived as long as the disability continues.

Buyer's Guide

explains the applicant's rights and responsibilities with regard to the type of insurance coverage being applied for.

noncancellable

guarantees that during the noncancellable period, it will neither cancel the policy nor increase the premium

government plans

in relation to health insurance, government plans are a third health insurance option after commercial insurers and managed care plans, government plans include Medicare, Medicaid, Social Security, and Worker's Comp

Notice of Information Practices

informs the applicant of the insurer's right to collect information from sources other than the application. In addition, it states how the insurer can share that information with third parties.

conditionally renewable

insurer guarantees that the policyowner can renew the coverage. However, he or she must first meet the conditions of the policy. Those conditions cannot be associated with the insured's health. Rather, they must be related to the insured reaching a certain age or losing employment or membership in an association that provides health coverage.

free-look provision (formally called the right to examine provision)

lets policyowners return the policy to the insurer within a limited time and receive a full refund of all premiums and fees paid.

Specified coverage

limited to a specific form of care.

relation-to-earnings provision

limits the amount of benefits the insurer will pay if there is more than one policy involved. The total amount of disability benefits from all policies the insured owns cannot exceed the insured's usual earnings.

time limit on certain defenses provision

limits the time an insurer can void a contract or deny a claim for material misrepresentations on the application.

other insurance in this insurer provision

limits the total coverage that the company assumes with one insured. It applies in cases where an insured may have two or more related policies with a single insurer. Specifically, the total in-force coverage that one company underwrites for one person can be limited to a certain amount. The number of policies the insurer issued does not matter—any excess insurance is void. Premiums that are charged for any coverage over this limit must be returned to the policyowner.

recurrent disability

no new elimination period would be required nor would a new maximum benefit period apply.

professional overhead expense policy

normally cover employee wages and other costs

Policy Summary

outlines the coverages and benefits of the specific policy being applied for.

Valued contracts

pay a stipulated sum as set forth in the contract, without regard for actual expenses. Accidental death and dismemberment insurance policies are valued contracts, as are life insurance policies. "Dread disease" policies that pay a stated value upon loss are valued contracts.

integrate the benefits

pay with similar benefits the insured may be receiving from other sources. This is especially common with disability income policies, which commonly stipulate the total benefit amount (from all sources) that the insured may receive. The stipulated amount is less than 100 percent of the insured's gross income.

flat benefit payment

payable only if the insured has returned to partial employment following a total disability. However, unlike the partial disability benefit (which defines the payment amount as a percentage of the total disability benefit based on the ratio of lost earnings), the flat benefit simply pays a flat amount that is less than the total disability benefit.

maximum benefit amount

places a cap on the total monthly benefit payable, regardless of the insured's monthly wage and benefit percentage. For example, consider a DI policy that provides a benefit of 60 percent of earnings but also has a $5,000 maximum monthly benefit limit. An insured who earns up to $8,333 per month would qualify for a monthly benefit of the full 60 percent of earnings. However, one who earns anything more than that would be limited to the $5,000 monthly benefit (since $8,333 × 60% = $5,000).

own occupation

policy benefits are payable if the insured cannot perform the duties of his or her own occupation due to injury or sickness. Thus, even if the insured could perform some other form of work (and receive income), benefits would be payable if the insured could not perform his or her own job.

managed care providers

provide their insured with health care directly through a network of health care providers

social insurance supplement (SIS) rider (also known as a Social Security rider or additional monthly benefit rider)

provides an additional monthly benefit before social insurance program benefits begin. (Social insurance programs include Social Security and workers' compensation.)

State workers' compensation

provides benefits to workers who become sick or injured because of a job-related event.

Social Security (Disability)

provides disability income to people under age 65 who become totally disabled.

waiver of premium provision

provides that the policy's premium will be waived if the insured is disabled. The insurance continues in force. A waiver of premium can also be added to a policy through a rider.

credit disability insurance

purchased by credit companies for the benefit of the creditor, credit DI covers the risk of the creditor becoming disabled and unable to pay off a loan. Owned by the credit company (who receives benefit payments), the policy is written so that its benefit period is the same as the loan period. The benefits payable are matched to the decreasing loan balance. If the insured becomes disabled during the policy period, the policy pays benefits equal to the loan payments that come due during the period the insured remains disabled.

Disability Reducing Term Insurance

purpose of this insurance is to cover any outstanding loans the business might have if and when the business owner becomes disabled.

automatic increase option

raises benefit amounts by a specified amount. Increases are generally defined as a percentage increase of the current benefit amount. Increases may be made as frequently as annually but may also be scheduled over longer time periods (for example, every five years).

Indemnity policies

reimburse the insured for the cost of covered medical care he or she receives. (An indemnity contract is one in which the benefit to be paid is based on the actual amount of the loss, as determined at the time of the loss.) Thus, medical expense indemnity contracts repay the insured for all or some of the medical expenses actually incurred. The coverages and reimbursement percentages are specified in the policy

any occupation

requires that the insured be unable to engage in any occupation for pay or profit for which he or she is reasonably suited through education, training, or experience. Disability products marketed to blue-collar workers generally use an any occupation definition of total disability.

notice of claim provision

requires that the insured notify the insurer within 20 days after he or she has a covered loss. In some cases, it may not be possible for the insured policyowner to notify the insurer within those 20 days. As a result, the clause is modified and softened by adding the language ". . . or as soon as reasonably possible." A notice of claim simply alerts the insurer that the insured will be making a claim against the policy. It serves as a notice for the insurer to send the insured the required claims forms.

short-term disability insurance (STD)

some insurers sell a type of DI that has a benefit period ranging from several months to two years. It is called short-term disability insurance (STD). Policies with benefit periods of two years or more are sometimes called long-term disability (LTD) policies.

time payment of claims provision

states that the insurance company pays claims immediately after receiving proper proof of loss. Ongoing income payments for disability claims must be paid at least monthly.

claim forms provision

states that the insurer must provide claim forms for the insured within 15 days of receiving a notice of claim. Sometimes the policyowner may not receive the appropriate forms within 15 days of notice. In such cases, the insured can submit a written statement describing how the loss occurred, what the nature of the loss is, and the medical expenses involved.

entire contract provision

states that the policy, attached riders, and endorsements make up the entire contract. Any other agreements outside of the contract, either written or oral, are not considered part of the contract.

consideration clause

states the consideration terms. The applicant's consideration in the health insurance contract is the application and the first premium payment. The insurance company's consideration is the promise to pay a benefit when a stated future event occurs.

insuring clause

states the insurer's promise to pay a specified amount of benefit if a certain event occurs. The insuring clause describes the type and scope of coverage; provides definitions used in the policy; and states the conditions that must be met for the policy to pay a benefit.

statement of continued good health

stating that no change to his or her health has occurred since the application was first signed.

benefit period

the duration of time during which benefits will be paid. It begins at the end of the waiting period and is usually expressed in the contract as the maximum period of time benefits will be paid for a single disability.

presumption of disability provision

the insured automatically qualifies for the policy's full benefit if he or she suffers a specified loss that, by definition, is deemed total and permanently disabling. Insureds that qualify for presumptive disability benefits are not required to remain under the ongoing care of a physician, nor are they required to periodically furnish proof of loss to the insurer.

fee-for-service approach

the insured pays the health care provider for services provided and then submits a claim for reimbursement to the insurer. Alternatively (and more commonly), the insured may assign the insurance benefits to the health care provider, which submits the bill for care directly to the insurer. In this case, the insurer sends payment to the provider which then bills the patient for amounts not reimbursed.

guaranteed renewable

the insurer guarantees that, during the guaranteed renewable period, it will not cancel the policy, though it does have the right to increase premiums

optionally renewable provision

the insurer holds the right to cancel the policy on a date specified in the contract. This provision also allows the insurer to increase the premium for anyone who is in the optionally renewable class. Typically, policies are canceled and/or premiums are increased on a policy anniversary date.

proof of loss provision

the insurer must receive written proof of loss within 90 days of the loss. This period can be extended for extenuating circumstances. In the case of disability insurance, proof of loss can be required on an ongoing basis.

return-to-work provision, or rehabilitation provision

the insurer pays for occupational therapy, training, or modifications to the insured's workplace. This is done to assist him or her in returning to work. This provision is not standard; it may or may not be included in any given policy

elimination period

the period of time that must elapse after the start of any disability before benefits commence. Acting much like a policy deductible, its purpose is to avoid claims for short-term disabilities that presumably the insured can absorb This helps the insurer keep its costs—and, therefore, its premiums—down.

probationary period

the period that must pass between the policy's effective date and the time when losses will be covered. Its purpose is to help the insurer avoid adverse selection. For that reason, probationary periods usually exclude coverage of illness-related losses only; accident-related losses are covered from the moment the policy is issued (because accidents, being unforeseeable, are not subject to adverse selection)

group plan sponsor

the policy owner and premium payor

Elimination periods

the waiting period after a loss occurs before benefits begin. During this time, benefits are not paid

probationary period

this is the time that must pass after the policy is issued before illness-related disabilities will be covered. The probationary period is typically short—15 to 30 days

Policy exclusions

those conditions that are not covered. That is, they are situations in which benefits are not payable because the underlying peril is excluded from coverage.

minimum benefit amount

usually a very small amount (perhaps $100) that is payable if the insured also qualifies for disability coverage from other sources (e.g., workers' compensation) which might otherwise reduce policy benefits to a lesser amount.