Life & Health Chapter 18 | Health Chapter 9: Health Insurance Policy Provisions

Absolute Assignment

This is a policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all of the rights in the policy in excess of the debt, despite the fact that the assignment is absolute in form.

Accidental Death Benefit (Multiple Indemnity) Rider

This rider pays an additional sum to the beneficiary if the insured dies due to a covered accident. The amount paid is a multiple of the policy face amount, such as double or triple the original benefit. Accident death life insurance provides the cheapest way to add a large amount of coverage for a limited period.

Accelerated Benefits Rider

This rider allows the insured to receive a portion of the death benefit before death if she has a terminal illness and is expected to die within 12 months. The amount withdrawn using an accelerated death benefit will decrease the death benefit when death occurs.

Assignment Clause

This clause allows the right to transfer policy rights to another person or entity.

Automatic Premium Loan Provision (or Rider)

This provision allows the insurance company to deduct the overdue premium from an insured’s cash value by the end of the grace period if a payment is missed on a life policy. The insurance company can AUTOMATICALLY take out a LOAN for the insured against his CASH VALUE to cover his PREMIUM if it doesn’t receive payment when due. This automatic premium loan can continue until the policy owner resumes making payments or the policy runs out of cash value. Once all of the insured’s cash value is gone, his policy will lapse if he doesn’t start paying.

Cancellable Policies

These are insurance contracts that the company may terminate.

Change of Beneficiary Provision

This is a provision that permits the insured to change the beneficiary as often as she wants, except for policies in which the beneficiary is irrevocable.

Change of Occupation Provision

This provision allows the insurer to reduce the policy’s maximum benefit payable if the insured switches to a more hazardous occupation. The provision also calls for the insurer to reduce the premium rate if the insured changes to a less hazardous occupation.

Claim Forms Provision

This provision specifies the formal request to an insurance company asking for a payment based on the insurance policy’s terms. The company’s responsibility is to supply a claim form to an insured within 15 days after receiving notice of claim. If the insurer fails to provide the form within 15 days, the claimant may submit proof of loss using any format available. The document must describe the occurrence, the character, and the extent of the loss. The policy owner can submit the claim using any means as long as it contains the required information.

Conformity with State Statutes Provision

This provision automatically amends any insurance policy provision that conflicts with the state statutes governing the jurisdiction in which the insured resides at the time the policy is issued to conform with that state’s minimum statutory requirements.

Consideration Clause

This clause states that a policy owner must pay a premium in exchange for the insurer’s promise to pay benefits. A policy owner’s consideration consists of completing the application and paying the initial premium. The consideration clause describes the amount and frequency of the required premium payments. It’s the applicant’s way of stating, “Please CONSIDER me for insurance. Here is my COMPLETED APPLICATION, INITIAL PREMIUM, as well as how much and how often I agree to pay.”

Cost of Living Rider

This rider allows the policy face amount to be adjusted to account for inflation based on the Consumer Price Index (CPI).

Entire Contract Provision

This provision (or clause) states that the insurance policy, any riders (endorsements), accepted amendments, and the insured’s attached application form comprise the entire contract between all parties.

Exclusions

These are features of an insurance policy that state that the policy will not cover certain risks.

Free-Look Period

Once a policy is delivered, this is the specified number of days that the policy owner is permitted to look over the policy. If dissatisfied within the period, the policy owner may return it for a refund of all premiums paid.

Grace Period

This is the period after the due date of a premium, during which the policy remains in force without penalty. For example, let’s assume that an insured dies during the grace period of a life insurance policy before paying the required annual premium. In this case, the beneficiary will receive the face amount of the policy minus any required premiums. For health insurance, remember the numbers 7-10-31. The 7 represents making payments more often than once per month, the 10 represents making premium payments once per month, and the 31 represents making premium payments less than monthly (e.g., quarterly, semiannually, etc.).

Guaranteed Insurability Rider (Future Increase Option)

This rider permits the policy owner to buy additional insurance coverage at predetermined intervals without submitting proof of insurability. It may also permit such purchases of additional coverage in response to specific events such as marriage and births. Typically, the benefit is allowed every three years, up to the policy’s original face amount.

Insurance with Other Insurer Provision

This provision states that benefits payable for expenses incurred will be prorated for cases in which the company accepted the risk without being notified of other existing coverage for the same risk. By doing so, this provision attempts to deal with the potential problem of over-insurance.

Insurance with Other Insurers Provision

This provision calls for the prorating of payable benefits on any basis other than expenses incurred.

Insuring Clause (or Insuring Agreement)

This clause or agreement is the insurer’s fundamental promise to pay specified benefits to a designated person in the event of a covered loss. This states the scope and limits of coverage, such as “We ensure to INSURE you for…”

Legal Actions Provision

This provision states that the insured cannot take legal action against the company in a claim dispute until after 60 days from the time the insured submits proof of loss.

Misstatement of Age or Sex Provision

This provision allows the insurer to adjust the policy benefits if the insured’s age or sex is misstated on the policy application. The misstatement of age provision allows the insurer to adjust the benefits that are payable to reflect the applicant’s correct age. At the time of application, if the insured were older than what’s shown in the policy, the insurance carrier would reduce the contract benefits accordingly. The reverse is true if the insured were younger than the age listed in the application. The insurance company would either increase the benefit or decrease the premium, whichever option better fits the specific circumstances.

Non-Forfeiture Options

These are the options that a policy owner has for their cash value if they terminate or lapse a policy that has a cash value.

Notice of Claims Provision

This is a policy provision that describes the policy owner’s obligation to provide notification of a claim to the insurer within a reasonable time. Typically, the allowed period is 20 days which begins at the time of the occurrence or the commencement of the ongoing loss (disability) or as soon after that as is reasonably possible.

Other Insurance with This Insurer Provision

This provision states that the total amount of coverage to be underwritten by a company for one person is restricted to a specified maximum amount, regardless of the number of policies issued.

Payment of Claims Provision

This provision in an insurance contract specifies how and to whom claim payments are to be made. Payments for loss of life are to be made to the designated beneficiary. If no beneficiary has been named, death proceeds will be paid to the deceased insured’s estate. For claims involving benefits other than death benefits, the insurance carrier will make payment to the insured or ANY OTHER NAMED PARTY, such as medical professionals, hospitals, etc.

Payor Provision (Rider or Clause)

This provision waives future premiums for a juvenile life insurance policy if the person responsible for paying the premiums dies or becomes disabled.

Physical Examination and Autopsy Provision

This is a standard health insurance policy provision that allows the insurer to examine the insured when a claim is pending and, in the event of death, perform an autopsy as long as it’s not prohibited by law. This provision entitles a company, at its own expense, to make physical examinations of the insured at reasonable intervals during the period of a claim unless state law forbids it.

Policy Face

This contains a summary of the type of policy and the coverage provided by the policy. It identifies the insured, the term of the policy (the effective date and termination date), and how the policy can be renewed.

Proof of Loss

This is a mandatory health insurance provision which states that the insured must provide a completed claim form to the insurer within days of the date of loss.

Reinstatement Provision

This provision allows a lapsed policy to be put back in force by producing satisfactory evidence of insurability and paying any of the required past-due premiums, outstanding loans, and interest.

Relation of Earnings Provision

This provision states that if more than one disability policy covers the same loss of income, the total amount paid cannot exceed the insured’s monthly earnings at the time of disability. The provision also states that each insurer is liable for a percentage of benefits that’s equal to their proportion of all applicable insurance.

For example, if INSURER A and INSURER B each insured John Doe for $2,000 per month, they each wrote 50% of the $4,000 of disability insurance covering John Doe. Let’s assume that John Doe’s actual income loss as a result of a disability is $3,000 per month. Therefore, $3,000 is the maximum benefit he can receive. INSURERS A and B must each pay 50% of the $1,500 monthly benefit because they each wrote 50% of the applicable $4,000 of coverage.

Return of Premium Rider

This rider pays the total amount of premiums that are paid into the policy in addition to the face value, as long as the insured dies within a specific period which is identified in the policy. It may also return premiums to the insured at the end of a specified period.

Social Security Rider

This rider provides for the payment of additional income when the insured is eligible for social insurance benefits, but those benefits have not yet begun, have been denied, or have begun in an amount that’s less than the benefit amount of the rider.

Subrogation

This is the provision in an insurance policy that allows the insurer to assume the legal rights of the insured and to take legal action against one or more third parties that caused a covered loss. Subrogation allows an insurance carrier to be reimbursed for amounts that are paid to the policy holder.

Time Limit on Certain Defenses

This clause states that a policy becomes incontestable after it has been in force for a certain period. The original provision set this period at three years. However, in various jurisdictions, state legislatures have reduced this period to two years. This provision is similar to the incontestable clause in a life insurance policy. Unlike life insurance contracts, a fraudulent statement on a health insurance application is grounds for contesting the claim and possibly canceling the contract at any time unless the policy is guaranteed renewable. During the first two or three years, an insured may need to defend a claim. The provision sets a TIME LIMIT on this period during which the insured must DEFEND herself. This time limit applies to the contestable period, preexisting conditions, and new claims. If the insured files a claim that she broke her leg yesterday, and the insurance company sees her performing a significant physical activity, she will likely be required to DEFEND her claim. However, at some point, it’s expected for her leg to heal.

Time of Payment of Claims Provision

This provision requires the insurer to pay claims immediately or within a stated number of days. If the claim involves disability income payments, the insurance carrier must make benefit payments monthly, if not at more frequent intervals as specified in the policy. The point is that the insured has upheld his part of the contract (i.e., paid his bill) but has now gotten sick or injured. Therefore, the insurance company must step in immediately and fulfill its role in the agreement. If the contract calls for disability income payments, the payments cannot be made less frequently than monthly since the insured would be unable to pay his bills.

Unpaid Premiums Provision

This provision states that if there’s an unpaid premium due when a claim becomes payable, the amount of the premium is to be deducted from the sum payable to the insured’s beneficiary. Essentially, this provision permits insurers to collect unpaid premiums from claim payments.

Waiver of Premium Rider

This rider allows the policy owner to waive premium payments during a disability but still keep the policy in force. The waiver of premium rider is not a loan and doesn’t provide cash payments to the policy owner. Instead, the insurance company is “waiving” the premiums.” It’s just as if the insured had made the premiums every month.