Life & Health Chapter 18 | Health Chapter 9: Health Insurance Policy Provisions
Chapter Summary – Health Insurance Policy Provisions
NAIC Model Uniform Health Insurance Policy Provisions
▪ The National Association of Insurance Commissioners (NAIC) developed 23 uniform provisions for use in insurance contracts—12 required uniform mandatory provisions and 11 uniform optional provisions.
▪ Insurance companies may substitute their language as long as it’s no less favorable to the insured.
▪ Substitute language requires state regulatory approval.
The 12 Required (Mandatory) Uniform Provisions
The Entire Contract Clause
▪ The entire contract clause defines the entire contract as the policy, the insured’s application, and any attached papers.
▪ No changes can be made without the policy holder’s consent.
[EXAM TIP: Remember WYSIWYG. “What you see is what you get!”]
Time Limit on Certain Defenses (Incontestability)
▪ The time limit on certain defenses provision declares the policy to be incontestable after it’s been in force for three years.
▪ Fraud on an application is always grounds for termination unless the policy is guaranteed renewable or better.
▪ Some states have a two-year time limit on certain defenses.
[EXAM TIP: Assume a time limit of three years unless the test references state law or integrates law and general questions.]
Grace Period
▪ Policies must have a grace period for accepting late premiums. The specified minimum grace periods are:
‒ Seven days for policies with weekly premium
‒ 10 days for policies with monthly premiums, and
‒ 31 days for other policies
Reinstatement
▪ The reinstatement provision restricts reinstatement payments to premiums that are due within the previous 60 days.
▪ Reinstatement is automatic if the insurer accepts the delinquent premium without an application.
▪ If an application is required, the insurer must respond within 45 days, or the policy is reinstated automatically.
▪ Reinstated policies cover accidents immediately and impose a 10-day probationary period on losses due to sickness.
Notice of Claim
▪ The notice of claim provision states that the policy holder must notify the insurer of any loss within 20 days or as soon as reasonably possible.
▪ Long-term disability claims allow an insurer to request a notice of claim every six months to ensure a continuing disability.
[EXAM TIP: Assume 20 days unless the exam specifies a disability claim.]
Claim Forms
▪ An insurer must provide a claim form within 15 days of receiving notice of claim or accept information in any format provided.
Proof of Loss
▪ An insured claimant must provide proof of loss within 90 days.
▪ The insured can provide proof within one year if she’s not legally incapable of doing so within 90 days.
Time of Payment of Claims
▪ The time of payment of claims provision provides for immediate claim payment after notification and proof of loss.
▪ If the claim involves disability income payments, the insurance carrier must make benefit payments monthly.
Payment of Claims
▪ The payment of claims provision states that benefits must be payable to the insured.
Physical Exam and Autopsy
▪ The physical exam and autopsy provision gives the insurer the right to require a physical examination or autopsy of an insured, at its own expense, before paying a claim.
▪ This provision applies unless it’s forbidden by state law.
Legal Actions
▪ The legal actions provision forbids the taking of legal action by the insured against an insurer regarding a claim until 60 days after proof of loss.
▪ The language of the NAIC Model Act also states that any such lawsuit must begin within three years after the insured provided the insurer with proof of loss.
Change of Beneficiary
▪ The change of beneficiary provision states that the insured may change beneficiaries at any time if the beneficiary is revocable.
▪ However, an irrevocable beneficiary cannot be changed without that beneficiary’s written consent.
The 11 Optional Uniform Health Insurance Provisions
Change of Occupation
▪ If an insured changes occupations without notifying his insurance company, the change of occupation provision states the following:
‒ The insurer will decrease the BENEFIT if the new job has a higher degree of risk.
‒ The insurer will decrease the PREMIUM if the new job has a lower degree of risk.
Misstatement of Age
▪ If an insured misstates her age, the misstatement of age provision allows the insurance carrier to adjust benefits so that they reflect the insured’s correct age.
Other Insurance with This Insurer
▪ The other insurance with this insurer provision states that if the insured has more than one policy with the same insurer, only the maximum benefit from one policy is payable.
▪ The insurer terminates the other policy and refunds the premium.
Insurance with Other Insurer (Reimbursement Policy)
▪ If the policy owner has duplicate coverage with another insurer on “an expense incurred (reimbursement) basis,” the insurance with other insurers provisions states the insurers share responsibility for paying any claim on a proportional basis.
Insurance with Other Insurers
▪ This form of the insurance with other insurers provision applies to benefits that are provided on an “other than expense incurred basis,” such as disability insurance.
▪ This provision allows an insurer to pay benefits to the insured on a pro-rata basis when the insurer was not notified prior to the claim that the insured has other health coverage.
Relation of Earnings to Insurance (Average Earnings) Clause
▪ The relation of earnings to insurance provision states the maximum benefit paid by all insurers combined cannot exceed the amount of income lost.
▪ Applicable policies pay on a pro-rata or proportionate basis.
Unpaid Premiums
▪ The unpaid premiums provision states that the insurer may deduct any unpaid or owed premium from the benefits that are payable by the policy.
Cancellation
▪ Most states now prohibit this cancellation provision in health insurance policies.
▪ The provision stated that the insurer could terminate or cancel the contract at any time with five days’ written notice to the insured.
Conformity with State Statutes
▪ The conformity with state statutes clause “modifies the policy” to meet minimum state requirements.”
Illegal Occupation
▪ This clause allows an insurer to deny claims if an insured is injured during the commission of an illegal act or while engaged in a felonious occupation.
Intoxicants and Narcotics
▪ This clause excludes losses that are incurred while the insured was under the influence of non-prescribed drugs or alcohol.
Additional Necessary Policy Provisions
▪ These provisions are necessary, but the language is not regulated, and the uniform provisions law doesn’t mandate their placement.
Free-Look (Right to Examine Clause)
▪ If the insured decides to return the policy during the free-look period, he will receive a full premium refund.
▪ The free-look period begins when the policy is delivered.
▪ The most common period is 10 days.
Insuring Clause
▪ The insuring clause is the part of the policy that defines the insurance company’s promise to pay benefits (both the benefits and the circumstances under which they’re payable).
Consideration Clause
▪ The consideration clause defines the insured’s consideration, which is the premium plus the statements (legal representations) that are made on the health insurance application.
Waiver of Premium
▪ The waiver of premium provision waives the payment of premiums after the insured has been totally disabled for the specified period.
Military Suspense Provision
▪ This provision temporarily suspends coverage for an insured who’s called up to activity duty and will resume it when the period of service ends.
Renewability Provisions
Non-Cancellable Policies
▪ A non-cancellable policy is one that cannot be canceled as long as the policy owner pays the premium.
▪ Some contracts refer to this type of policy as “non-cancellable and guaranteed renewable.”
▪ The insurer can neither modify the policy’s terms nor increase the premium.
Guaranteed Renewable Policies
▪ Insurers cannot terminate a guaranteed renewable policy as long as the premium is paid.
▪ The insurer cannot modify the terms of the policy.
▪ The insurer CAN increase premiums on a class basis.
Conditionally Renewable Policies
▪ Under certain stated conditions, an insurer cannot non-renew a policy.
▪ The stated conditions for non-renewal are general, not individual insurability.
▪ Carriers can increase policy premiums at renewal on a class basis.
Optionally Renewable Policies
▪ The optionally renewal policy offers no guarantee of renewal.
▪ The insurer can increase premiums on a class basis.
Non-Renewable Policies
▪ Non-renewable policies remain in force for one year or less and are typically used to meet short-term needs.
Period of Time (Short-term)
▪ These policies, such as “short-term major medical”—also referred to as term policies—are only renewable for a stipulated term (e.g., six months) or period.
Cancellable Policies
▪ The insurer can cancel this type of policy with five days’ written notice and the return of any unearned premiums.
▪ An insurer may cancel an individual policy if the insured files too many claims in a policy period.
▪ Most states don’t allow cancellable health insurance policies.
Policy Exclusions, Limits, and Restrictions
▪ Health insurance policies frequently indicate a number of exclusions or conditions that are not covered, such as:
‒ Injuries due to war or an act of war, or military service
‒ Self-inflicted injuries, including suicide
‒ Injuries sustained while the insured is piloting an aircraft or otherwise engaged in non-commercial air travel
‒ Extended foreign travel or foreign residence
‒ Losses resulting from riots, or the use of drugs or narcotics
‒ Injuries sustained while attempting or committing a felony
‒ Losses covered by social insurance
‒ Procedures that are not medically necessary or are experimental
Probationary Period
▪ The probationary period is a one-time 30-day event that becomes effective when the policy is issued or reinstated.
▪ It excludes losses due to illness during the first days of a new policy, asserting the infection occurred before coverage began, even if symptoms did not appear until after coverage began.
▪ Coverage for accidents is not excluded.
Preexisting Condition Provisions
▪ The preexisting condition provision excludes health conditions that existed immediately before coverage began. It particularly focuses on conditions that are not disclosed in the application.
▪ This provision is important when no individual underwriting is done, as in group insurance.
▪ This provision applies regardless of whether an applicant knows that the condition exists.
▪ This provision typically doesn’t apply to preexisting conditions that are disclosed on an application, which tend to be either covered or excluded.
Impairment (Waiver for Impairment) Rider
▪ An impairment rider is also referred to as an exclusion rider, coverage waiver, or a waiver of disability.
▪ Impairment riders allow an insurer to restrict coverage for an illness or injury that’s disclosed on an application for the life of the contract.
▪ Since the rider allows the insurer to exclude a significant source of greater than average risk, the insurance carrier can often provide coverage at the standard premium.
▪ If an impairment rider is attached to a policy, its restrictions or limitations must be explained to the policy owner at the time of delivery. Generally, the policy owner must sign a statement that he’s aware of and understands the effects and limitations of this type of rider.
Additional Health Insurance Policy Provisions
Owner’s Rights Provision
▪ This provision states that the policy holder is entitled to all ownership rights under the health insurance contract.
Assignment Provision
▪ Policy holders have a limited right to assign benefits to providers for direct payment of expenses because health insurance is a personal contract.
Beneficiary Provision
▪ When health insurance includes a death benefit, the Uniform Mandatory Provisions include a “change of beneficiary” provision.
Beneficiary Types
▪ The insured can provide benefits directly and bypass probate.
▪ If no beneficiary is named, any death benefits are paid to the estate.
‒ Individual beneficiaries: Specific individuals to receive a death benefit.
‒ Beneficiary class: A beneficiary class defines beneficiaries by describing them rather than naming them.
Order of Succession
▪ Primary beneficiaries: Receive all of the benefits at the insured’s death.
▪ Secondary (contingent) beneficiaries: Only receive benefits if all of the primary beneficiaries predecease the insured.
▪ Tertiary beneficiaries: These beneficiaries only receive benefits if both the primary and secondary beneficiaries all die before the insured.
Modes of Premium Payment Provision
▪ This provision governs the premium mode and allows the policy holder to select the frequency of his policy premiums, such as:
‒ Monthly
‒ Quarterly
‒ Semiannually, or
‒ Annually
▪ The annual mode is the least expensive premium mode, while the monthly premium is the most costly.
▪ A “single premium” is not an option for health insurance policies.
Reductions in Coverage
▪ The reductions in coverage provision states that health insurance policies don’t reduce coverage amounts following a loss.
Benefit Payment Provision
▪ The benefit payment provision states how benefits will be paid.
No Loss / No Gain Provision
▪ This provision states that no insured can profit from the policy.
Restoration of Benefits
▪ The restoration of benefits provision states that the amounts paid out for a loss don’t reduce the total available benefits for future claims.
Coordination of Benefits(COB)
▪ The coordination of benefits provision is found in group insurance but also applies to social insurance programs (e.g., Medicare).
▪ This provision limits the total amount of payments from all insurers that cover the claim to no more than the total cost of care (e.g., avoids duplication of benefits).
▪ The COB provision also establishes which plan is primary and must pay all of the benefits that are specified by the contract. Once the primary insurance plan pays benefits as if it were the only available coverage, the secondary provider is liable for the remaining costs.
▪ Employer-sponsored group insurance is the primary coverage for workers who are the age of 65 or older if the employer is a “COBRA group” of 20 or more employees.
▪ If a group has fewer than 20 employees, Medicare is the primary insurer.
▪ Medicare is always the primary coverage for a person who has an individual policy or group retiree medical insurance.