policy provisions and riders available in health insurance.

TERMS TO KNOW

Cancellation — termination of an in-force insurance policy, by either the insured or the insurer, prior to the expiration date shown in the policy Claim — a request filed with an insurance company asking for payment according to the terms of an insurance policy  Expense-incurred basis — policy pays health policy benefits as a reimbursement of actual expenses  Guaranteed renewable — a policy that is written on a noncancellable basis with the right to renew guaranteed  Irrevocable beneficiary — a beneficiary who has a vested interest in the policy and therefore, the policyowner may not exercise certain rights without the consent of the beneficiary  Lapse — policy termination due to nonpayment of premium  Provision — a legal clause in an insurance contract spelling out mandatory or optional duties and rights of the insured AND the insurer  Reinstatement — returning a lapsed policy to active status  Statute — a formal written law enacted by legislature; insurance statutes can be found in the state Insurance Code

A. Required Provisions

The Uniform Individual Accident and SicknessPolicy Provisions Law, which was developed by the National Association of Insurance Commissioners (NAIC), has been adopted in all states. This law established standard provisions that are to be included in all individual health insurance policies. Although the wording may differ from one insurer to another, the basic provisions are the same. Some of these provisions are similar to life insurance policy provisions.

The purpose of these provisions is to define the rights and duties of both the insurer and the policyholder. Any of the provisions may be reworded by the insurer, so long as modification does not make the provision less favorable to the policyholder or beneficiary.

1. Entire Contract; Changes

The entire contract provision states that the health insurance policy, together with a copy of the signed application and attached riders and amendments, constitutes the entire contract. No changes may be made to the policy without the express written agreement of both parties, and any changes must also be made a part of the contract. Only an executive officer of the company, not an agent, has authority to make any changes to the policy.

2. Time Limit on Certain Defenses

The time limit on certain defenses provision is similar to the incontestability provision found in life insurance policies. No statement or misstatement (except fraudulent misstatements) made in the application at the time of issue will be used to deny a claim after the policy has been in force for 2 years. If the insurer discovers that the applicant has committed fraud, they may deny a claim any time the policy is in force, even after the first 2 years.

A claim for loss incurred or disability commencing after 2 years from the date of policy issue may not be reduced or denied on the ground that a disease or physical condition not specifically excluded from coverage had existed prior to the effective date of coverage of this policy.

3. Grace Period

The grace period is the period of time after the premium due date in which premiums may still be paid before the policy lapses for nonpayment of the premium. Although the grace period may differ according to individual state laws, in most cases the grace period can be not less than 7 days for weekly premium policies (industrial policies), 10 days for monthly premium policies, and 31 days for all other modes. Coverage will continue in force during the grace period.

4. Reinstatement

If the premium has not been paid by the end of the policy’s grace period, the policy will lapse (terminate). This provision stipulates under what conditions the insured may reinstate coverage. Reinstatement is automatic if the company or an authorized representative accepts the policy premium and does not require a reinstatement application. However, if a reinstatement application is required and a conditional receipt is issued for the payment of the policy premium, the company may approve or disapprove the reinstatement application. Coverage is automatically reinstated if not refused within 45 days from the date the conditional receipt was issued. Accidents will be covered immediately following the reinstatement; however, sickness is covered only after 10 days. This helps to protect the insurer from adverse selection.

B. Other Provisions

In addition to the mandatory provisions discussed above, the insurance company has the option of including any of the following optional provisions.

An insurance company may change the wording of the optional policy provisions as long as the rewording is not less favorable to the policyholder.

1. Unpaid Premium

Upon payment of a claim, any past due premiums will be deducted from the claim and the policyholder will be paid the net amount.

2. Other Benefits

If the insured has 2 or more policies from different companies that provide benefits on an expense-incurred basis, and the policies cover the same expenses, and if the insurance companies were not notified that the other coverage existed, then each insurer will pay a proportionate share of any claim.

The same principle applies when the policy pays specific benefits rather than paying on an expense-incurred basis.

3. Cancellation

Within the first 90 days after the date of issue, the insurer may cancel a policy by written notice delivered to the insured, or sent by first class mail to his last address as shown by the records of the insurer, stating when the cancellation will be effective, but not less than 10 days thereafter. In the event of cancellation, the insurer will return promptly the pro-rata unearned portion of any premium paid. Cancellation must be without prejudice to any claim originating prior to the effective date of cancellation.

4. Conformity with State Statutes

This provision states that any provision of the policy which, on its effective date, is in conflict with the statutes of the state in which the insured resides on that date, is automatically amended to conform to the minimum requirement of the statutes. Although this is an optional provision, most states require that it be included in every health insurance contract issued.

5. Illegal Occupation

This provision states that liability will be denied if the insured is injured while committing an illegal act or is engaged in an illegal occupation.

6. Intoxicants and Narcotics

The insurer is not liable for any claims that result while the insured is intoxicated or under the influence of drugs (unless administered by a physician). Treatment for substance abuse is usually a covered benefit under health insurance policies. This provision simply excludes any injury or sickness that results from the insured’s intoxication.

C. Other General Provisions

All individual health insurance policies are required to include certain standard provisions, called Uniform Mandatory Provisions. In addition to these mandatory provisions, some provisions are required in individual policies, while other provisions are required in both individual and group contracts. Insurers may use additional provisions that are not in conflict with the uniform provisions, as long as they are approved (allowed) by the state where the policy is delivered. Although it is impossible to catalog all of the provisions used by insurers, the following are the more commonly used.

1. Right to Examine (Free Look)

This provision allows the insured a period of time to look over a policy once it has been delivered and provides the right to return the policy for any reason. The insured is then entitled to a full refund of all premiums paid. New York law mandates that health policies issued in this state must have a free-look period of at least 10, but no more than 20 days.

2. Insuring Clause

The insuring agreement or clause is usually located on the first page of the policy. It is simply a general statement that identifies the basic agreement between the insurance company and the insured. It identifies the insured and the insurance company and states what kind of loss (peril) is covered.

3. Consideration Clause

The consideration clause, which is usually located on the first page of the policy, makes it clear that both parties to the contract must give some valuable consideration. The payment of the premium and the statements in the application are the consideration given by the applicant. The insurer’s consideration is the promise to pay in accordance with the contract terms.

4. Renewability Clause

The face page of the individual health insurance contract must clearly state under what conditions the policy may be renewed. If the insurer reserves the right to refuse renewal, the insurer must deliver or mail to the policyholder's last known address a written notice of its intention not to renew the policy beyond the period for which the premium has been accepted.

Since individual health insurance policies provide coverage for a specified term, the absence of a cancellation provision does not guarantee continuing protection. Even when the insurer cannot cancel a policy, the insurer may retain the right to refuse to renew the policy.

Each policy should be carefully examined to determine which renewal provision it contains, as these are extremely important provisions.

Noncancellable

The insurance company cannot cancel a noncancellable policy, nor can the premium be increased beyond what is stated in the policy (note that the policy may call for an increase in a certain year, such as "age 65," but that must be stated in the original contract). The insured has the right to renew the policy for the life of the contract; the insurer cannot increase the premium above the amount for which the policy was originally issued. However, the guarantee to renew coverage usually only applies until the insured reaches age 65, at which time the insured is usually eligible for Medicare. For disability income insurance the policy will be renewed beyond age 65 only if the insured can provide evidence that he or she has continued to work in a full-time job.

Guaranteed Renewable

The guaranteed renewable provision is similar to the noncancellable provision, with the exception that the insurer can increase the policy premium on the policy anniversary date. The insured, however, has the unilateral right to renew the policy for the life of the contract. The insurer may increase premiums on a class basis only and not on an individual policy. As with the noncancellable policy, coverage generally is not renewable beyond the insured's age 65. Medicare Supplements and long-term care policies must be written as guaranteed renewable contracts, and cannot be cancelled by the company at the insured's age 65.

D. Chapter Recap

This chapter explained different types of policy provisions that modify coverage in individual health insurance policies. Let's recap some of the key concepts:

POLICY PROVISIONS
Uniform Required Provisions	Entire contract - policy (with riders and amendments) and copy of the application Grace period - time period after the premium is due during which the policy will not lapse Reinstatement - a policy can be restored within a specified period of time with proof of insurability Change of beneficiary:  Revocable - can be changed at any time  Irrevocable - can only be changed with the beneficiary's consent Notice of claim - insured must provide insurer with reasonable notice after loss. Notice is required within 20 days of loss, or as soon as possible Claim form - company must supply insured with claims forms within a specific period Proof of loss - claimant must submit proof of loss within 90 days of loss Time of payment of claims -specifies that claims must be paid upon written proof of loss Payment of claims -specifies to whom claims payments will be made Physical examination and autopsy - gives the insurer the right to examine the insured as often as necessary while a claim is pending  Time limit on certain defenses - misstatements on an application cannot be used to deny a claim after the policy has been in force for 2 years Legal action - insured must wait 60 days after written proof of loss before bringing legal action against the company
Uniform Optional Provisions	Misstatement of age - benefits are adjusted according to what the premium paid would be purchased at correct age Change of occupation - allows insurer to adjust benefits if the insured changes occupations Illegal occupation - liability will be denied if the insured is injured while committing an illegal act or is engaged in an illegal occupation Other insurance in this insurer - pro rata benefit reduction in response to overinsurance Insurance with other insurers - separate insurers pay proportionate benefits for any one claim Unpaid premium - past due accounts are deducted from claim amount Cancellation - insurer may cancel policy with a written notice Conformity with state statutes - conflicting policies are automatically amended to meet state requirements Intoxicants and narcotics - insurer is not liable for claims resulting from intoxicants or drug use
Other Provisions and Clauses	Insuring clause - basic agreement between the insurer and the policyowner Free look - policy can be returned for a refund of premium within a specified time period Consideration - parties to a contract exchange something of value Probationary period - states that a period of time must lapse before coverage for specified conditions goes into effect Elimination period - commonly found in disability income policies; a period of days that must pass after the onset of an illness or occurrence of an accident before benefits will be payable Coinsurance - provides for the sharing of expenses between the insured and the insurance company; expressed as a percentage after the insured pays the policy deductible Exclusions - specifies causes of loss for which the insurer will not pay, including losses that result from war, military duty, self-inflicted injuries, dental expense, cosmetic medical expenses, eye refractions, or care in government facilities
RIGHTS OF RENEWABILITY
Noncancellable	Insurer cannot cancel or raise premiums beyond amount stated in the policy
Cancellable	Insurer may cancel the policy at any time or at end of policy period with proper written notice and a refund of any unearned premium paid
Guaranteed Renewable	Insurer may increase the policy premium (on a class basis only) on the policy anniversary date; insured has the unilateral right to renew the policy for the life of the contract

Chapter Complete