Chapter 12: Individual Policy Provisions Flashcards
Mandatory Provisions
Uniformed provisions, designed to protect insured. By law, must be included in every individual accident and health insurance policy. There are 12 Mandatory Provisions: - Entire Contract Clause Time Limit on Certain Defenses (Incontestability Clause) - Grace Period - Reinstatement - Notice of Claim - Claim Form Provision - Proof of Loss - Time of Payment of Claims - Payment of Claims - Physical Exam and Autopsy - Legal Actions - Change of Beneficiary
Optional Provisions
Optional provisions, designed to protect insurer. Must conform to the state’s insurance code. Includes:
- Change of Occupation
- Misstatement of Age
- Other Insurance with This Insurer
- Other Insurance with Other Insurers
- Relationship of Earnings to Insurance
- Unpaid Premiums
- Conformity with State Statutes
- Illegal Occupation/Act
- Intoxicants/Narcotics
- Cancellation
Entire Contract Clause
Includes the policy and provisions, a copy of the application and any riders, waivers or endorsements. Changes must be requested in writing, signed by the insurer, and attached to contract in the form of an amendment. Agent does not have authority to make changes or waive any policy provisions.
Time Limit on Certain Defenses (Incontestability Clause)
No statement or misstatement (except fraudulent misstatements) may be used to deny a claim after the policy has been in force for 2 years.
Grace Period
Period of time after the premium due date before the policy lapses for nonpayment of premium. Varies based on frequency/mode of premium. Must not be less than 7 days for weekly premiums, 10 days for monthly premiums, and 31 days for all other modes of premium.
Reinstatement
Allows insured, at insurer’s discretion, to restore a policy that has lapsed for nonpayment of premium. Requires paying of past-due premiums plus interest. Insured will need to complete a new application and insurer may also require proof of insurability. If reinstatement is not rejected within 45 days, coverage is automatically reinstated. Accidents covered immediately and sickness coverage generally begins 10 days after reinstatement.
Notice of Claim
Insured must notify insurer of claim in writing within 20 days of the loss or as soon as reasonably possible. Notice to the agent is the same as notice to the insurer.
If the insured is receiving continuing disability benefits, the insurer can require notice of continuance of the claim every 6 months.
Claim Form Provision
If insurer requires claim form, it must be received by the insured from the company within 15 days after the notice of claim. If forms are not furnished, the insured may submit written proof of occurrence, character, and extent of loss.
Proof of Loss
Limits the amount of time the insured has to submit proof of a loss to the insurer. Proof of loss is required within 90 days of loss or in the shortest period of time possible, but may not exceed 1 year unless the insured suffers legal incapacity.
Time of Payment of Claims
All claims are to be paid immediately upon written proof of loss. Loss of time benefits, or disability income, must be paid at least monthly. Within 40-45 days is considered to be immediate.
Payment of Claims
Claims are paid to the policyowner unless otherwise specified or there is an assignment of benefits (allows insured to assign or transfer payment directly to provider, physician, or hospital). Any death benefits are paid to the named beneficiary.
Physical Exam and Autopsy
Gives the insurer the right to examine the insured or require an autopsy at the insurer’s expense where not prohibited by law.
Legal Actions
Insured must wait 60 days, but no later than 3 to 5 years (depending on the state) after proof of loss before legal action can be brought against insurer.
Change of Beneficiary
Consent of the beneficiary is not required unless the beneficiary is irrevocable. The change becomes effective on the owner’s signature date once the insurer has recorded the change.
Change of Occupation
If insured changes to more hazardous occupation, benefits and premiums will be adjusted to that of the more hazardous occupation.
If insured changes to a less hazardous occupation, benefits will pay as stated in the policy and the insured may apply for a rate reduction.
Misstatement of Age
Benefits paid will be based on what the premium would have purchased at the correct age. If the misstatement leads the insurer to provide coverage beyond the age limit, liability is limited to a refund of premiums.
Other Insurance with This Insurer
If insured has more than 1 policy with the same company, insured may decide which policy to use. Excess premiums for the excess coverage will be returned. This provision protects insurers against overpayment of claims.
Insurance with Other Insurers
If the insured has duplicating coverage with other insurers, any single insurer’s liability is limited to a proportion of loss. Referred to as the Coordination of Benefits for insurance policies. This provision protects insurer against overpayment of claims.
Relationship of Earnings to Insurance
Disability income benefits (AKA loss of time benefits) cannot exceed insured’s monthly earnings at the time of the disability began or his/her average earnings for the 2 years immediately before a disability, whichever is greater). Monthly benefit cannot be reduced to less than $200.
Unpaid Premiums
Allows an insurer to deduct unpaid premiums from a claim that has occurred during a grace period.
Conformity with State Statutes
Any provision on the policy effective date that is in conflict with statutes of the state is automatically amended to meet state requirements.
Illegal Occupation/Act
Liability is denied if the insured is injured while committing an illegal occupation/act. An illegal occupation will also result in an application being declined for coverage.
Intoxicants and Narcotics
Liability is denied if an injury is caused by the insured being intoxicated or under the influence of drugs, unless administered on the advice of a physician.
Cancellation
Insurer may cancel with written notice to the insured. Unearned premium is refunded on a pro rata basis if the policy is cancelled by the insurer.
Insured may cancel after the initial policy term with written notice to the insurer at any time. The unearned premium is returned on a short rate basis, which includes a cancellation fee.
