NC HEALTH INSURANCE CHAPTER 3

What are the 4 essential elements of a valid insurance contract?

1) Agreement (offer and acceptance), 2) Consideration, 3) Competent parties, 4) Legal purpose.

What is the consideration in an insurance contract for both parties?

The insured's consideration is the payment of premiums and statements on the application. The insurer's consideration is the promise to pay for losses.

What does insurable interest mean in health insurance?

It is proven by love, affection, economic, or financial loss, and must exist at the time of policy issuance.

What are representations in insurance applications?

Statements believed to be true to the best of the applicant's knowledge, used to answer questions on the application.

What is a material misrepresentation?

A false statement that would alter the insurer's underwriting decision. If intentional, it's considered fraud.

What is a warranty in insurance terms?

An absolutely true statement upon which the validity of the insurance policy depends.

What is concealment?

Intentional withholding of material information by the applicant, which may void a policy

What is a conditional contract?

A contract requiring certain conditions to be met for performance, such as paying premiums or submitting proof of loss.

What is a unilateral contract?

Only the insurer makes a legally enforceable promise - to pay for covered losses. The insured makes no promises.

What is a contract of adhesion?

A contract prepared by one party (the insurer) and accepted or rejected by the other (the insured) without negotiation.

What is a notice to the applicant?

A mandatory notice that informs the applicant that a credit report may be ordered as part of underwriting.

Why is completeness and accuracy important in applications?

Agents must ensure all answers are complete and correct, as applications are the main underwriting tool.

How should changes be made on an insurance application?

Either fill out a new application or have the applicant initial any corrections

What happens if no initial premium is sent with the application?

The agent must collect the premium and a statement of continued good health before the policy is delivered.

What is the role of the agent in submitting applications?

The agent checks for accuracy, completeness, and required signatures before sending it to the insurer.

What is an Attending Physician Statement (APS)?

A report from the applicant's doctor providing accurate health history when requested by the insurer.

What is the Medical Information Bureau (MIB)?

A nonprofit organization that helps insurers share underwriting information, but cannot be the sole reason to deny coverage.

What is the HIPAA Privacy Rule?

It protects all individually identifiable health information, including payment and treatment records.

What is the Fair Credit Reporting Act?

A law that protects consumers by ensuring accurate and fair handling of credit and background information

What are consumer reports?

Reports with written/oral information about a person's credit, character, or habits used for underwriting

What are investigative consumer reports?

Reports based on personal interviews; consumers must be notified within 3 days and receive results within 5 days.

What is policy delivery?

The agent must deliver the policy and collect any premiums due at that time

What is the agent's responsibility after policy delivery?

Explain benefits, provisions, riders, exclusions, and collect signatures for any amendments.

What must a group be formed for in order to qualify for group health insurance?

The group must be formed for a purpose other than obtaining group health insurance. Coverage must be incidental to the group

What are the two types of groups eligible for group insurance?

Employer-sponsored groups and association-sponsored groups.

What is an employer-sponsored group?

A group in which the employer provides coverage to employees who meet time of service and full-time work requirements.

What is an association group?

A group formed for a reason other than insurance that has at least 100 members and meets other requirements.

Does group health insurance always require underwriting?

No, but individual health insurance usually does. Group underwriting depends on group size.

What is the 'master policy' in group insurance?

It is the policy issued to the policyowner (employer, association, union, etc.). Employees receive certificates of insurance.

What is the difference between individual and group health contracts?

Individual contracts require guaranteed renewable underwriting. Group contracts may have less strict underwriting.

What is the annual open enrollment period?

A 30-day period once a year when employees can enroll without evidence of insurability.

What happens if an employee applies after open enrollment?

They may need to satisfy a probationary period and prove insurability.

What are the eligibility requirements for employer health plans?

Employees must be full-time (usually 30+ hours/week) and actively at work

Who qualifies as a dependent under group health insurance?

Spouse, children under the limiting age, legally adopted children, and disabled dependent children.

What is the difference between contributory and noncontributory plans?

In contributory plans, both employer and employee pay premiums; 75% participation is required. In noncontributory, the employer pays the full premium and 100% participation is required.

What is the Coordination of Benefits (COB) provision?

Prevents duplication of benefits. Establishes a primary and secondary plan to avoid excess reimbursement.

What is the birthday rule under COB?

The plan of the parent whose birthday falls earlier in the year is considered primary.

What does COBRA require for employers with 20+ employees?

To offer continuation of group health coverage for up to 18 months after qualifying events like termination.

How long is COBRA coverage extended for dependents in divorce or death?

36 months

What is Blanket Coverage?

Covers members of a specific group participating in an activity. No names are listed, and no certificates are issued.

What are MEWAs?

Multiple Employer Welfare Associations for at least 2 employers, pooling resources to provide health benefits.

What is group insurance?

Coverage provided to members of a group, typically employees, where the policy is owned by the employer or organization.

What are the two types of group insurance?

Employer-sponsored and association-sponsored.

What is a master policy?

The group insurance policy issued to the employer or association sponsoring the plan.

What is a certificate of insurance?

Document given to employees that outlines coverage details under a group plan.

When is evidence of insurability NOT required in group insurance?

During the annual open enrollment period

What is the difference between individual and group contracts?

: Individual contracts require careful underwriting, while group contracts are less restrictive and use annual re-evaluation

What is the probationary period?

A waiting time before new employees become eligible for group insurance coverage.

Who is eligible for group health insurance?

Full-time employees working in a covered classification who are actively at work.

What is a contributory plan?

A plan where employees contribute to premium payments; at least 75% participation required.

What is a noncontributory plan

A plan where the employer pays the entire premium; 100% employee participation required.

What is the COB provision?

Coordination of Benefits provision prevents duplicate payments when multiple group plans cover the same individual.

How is the primary plan determined under COB?

Based on birthday rule or dependent status in cases like marriage, divorce, or custody

What is COBRA?

A federal law that allows employees to continue group health coverage after job loss or qualifying events

How long does COBRA coverage typically last?

18 months for employees; 36 months for dependents due to divorce or death.

What is blanket coverage?

Insurance for a group involved in a specific activity, like school or sports teams, without naming individuals.

What is a MEWA?

Multiple Employer Welfare Arrangement: a plan pooling risk across multiple employers, often for self-insurance.

What is AD&D insurance?

Accidental Death & Dismemberment insurance pays benefits for accidental death or loss of body parts

What is the principal sum in AD&D?

The full face amount paid in the event of accidental death.

What is the capital sum in AD&D?

A percentage of the principal sum paid for dismemberment based on severity.

What is a limited risk policy?

Covers accidents under specific conditions, like travel.

What is a special risk policy?

Covers uncommon hazards, such as racecar testing

What does OASDI stand for?

Old Age Survivors Disability Insurance, the formal name for Social Security Disability.

What is fully insured status in Social Security?

Having earned 40 quarters (10 years) of work.

What is currently insured status in Social Security?

Having 6 quarters of coverage in the last 13 quarters.

What is Social Security's definition of disability?

Inability to engage in any substantial gainful activity expected to last 12 months or lead to death.

What is the waiting period for Social Security disability?

: 5 months.

What is the PIA?

Primary Insurance Amount based on highest 35 years of indexed earnings.

What is occupational coverage?

Covers claims for accidents or sicknesses on or off the job

: What is nonoccupational coverage?

Covers only off-the-job accidents or sicknesses.

Who is eligible for workers' compensation?

Employees with work-related injury or illness.

What are the four benefits under workers' compensation?

Medical, income, death, and rehabilitation benefits.