Twelve Mandatory Policy Provisions

In accordance with the NAIC model law, there are 12 mandatory provisions that are required to be in all
health insurance contracts. These are as follows:

1. Entire Contract

Like its counterpart in a life insurance policy, the entire contract provision in a health insurance policy protects the policyowner in the following ways:

• The entire contract includes the actual policy and the application

• It states that nothing outside of the contract (the contract includes the signed
application, endorsements and any attached policy riders) can be considered part of the contract

• It also assures the policyowner that no changes will be made or will any of the
contract’s provisions be waived after it has been issued

• Any change to a policy must be made with the approval of an executive officer of the insurance company whose approval must be endorsed on the policy or attached in a rider

 

2. Time Limit on Certain Defenses

Under the time limit on certain defenses provision, the policy is incontestable after it has been
in force a certain period of time, usually two years. This is similar to the incontestable clause in
a life insurance policy. Unlike life policies,a fraudulent statement on a health insurance
application is grounds for contest at any time, unless the policy is guaranteed renewable.

• An insurance company can usually contest the information contained in an accident and health application
(normally for a 2-3 year period) starting on the date the insurance company dates the policy


3. Grace Period

• The policyowner is given a number of days after the premium due date during which
time the premium payment may be delayed without penalty and the policy continues in force

• If an insurer pays an individual accident and health insurance claim during a policy's
grace period, the amount of unpaid premium may be subtracted from the
reimbursement

• Depending on the state, the minimum grace periods typically specified are 7 days for
policies with weekly premium payments (i.e., industrial policies), 10 days for policies
with premiums payable on a monthly basis, and 31 days for other policies

 

4. Reinstatement

• Under certain conditions, a policy that has lapsed may be reinstated

• Reinstatement is automatic if the delinquent premium is accepted by the company or its
authorized agent and the company does not require an application for reinstatement

• If the insurer takes no action on the application for 45 days, the policy is reinstated
automatically

• To protect the company against adverse selection, losses resulting from sickness are
covered only if the sickness occurs at least 10 days after the reinstatement date

• Accidents are covered immediately upon reinstatement

5. Notice of Claim

• The notice of claim provision describes the policyowner’s obligation to the insurer
to provide notification of loss within a reasonable period of time

• Typically, the period is 20 days after the occurrence or a commencement of the loss, or
as soon thereafter as is reasonably possible

 

6. Claim Forms

• It is the company's responsibility to supply a claim form to an insured within 15 days
after receiving notice of claim

• If it fails to do so within the time limit, the claimant may submit the claim in any
form, which must be accepted by the company as adequate proof of loss

7. Proof of Loss

• The statement that an insured must give an insurance company to show that a loss actually
occurred is a Proof of Loss

• After a loss occurs, or after the company becomes liable for periodic payments (e.g., disability income benefits), the claimant has 90 days in which to submit proof of loss

 

8. Time of Payment of Claims

The time of payment of claims provision provides for immediate payment of the claim after the
insurer receives notification and proof of loss.

• If the claim involves disability income payments, they must be paid at least monthly

9. Payment of Claims

The payment of claims provision in a health insurance contract specifies how and to whom
claim payments are to be made.

10. Physical Exam and Autopsy

The physical exam and autopsy 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 it’s forbidden by state law.

11. Legal Actions

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. The time limit for a legal action provision in a contract is limited to no more than 5 years.

• The Legal Action provision provides the insurer adequate time to research a claim

 

12. Change of Beneficiary

The insured, as policyowner, may change the beneficiary designation at any time unless a
beneficiary has been named irrevocably.

►ELEVEN OPTIONAL PROVISIONS

There are 11 optional health policy provisions. Companies may ignore them or use only those that are
needed in their policy forms.

1. Change of Occupation

• This provision also allows the insurer to reduce the maximum benefit payable under the
policy if the insured switches to a more hazardous occupation or to reduce the premium
rate charged if the insured changes to a less hazardous occupation

2. Misstatement of Age

• The misstatement of age provision allows the insurer to adjust the benefit payable
if the age of the insured was misstated when application for the policy was made

 

• If the insured was older at the time of application than is shown in the policy, benefits
would be reduced accordingly

• The reverse would be true if the insured were younger than listed in the application

3. Other Insurance with This Insurer

• Under this provision, 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

• This provision is designed to protect the insurer

4. Insurance with Other Insurer

In attempting to deal with the potential problem of overinsurance, the insurance with other
insurer provision states that benefits payable for expenses incurred will be prorated in cases
where the company accepted the risk without being notified of other existing coverage for the
same risk.

 

5. Insurance with Other Insurers

Similar to the previous, the insurance with other insurers 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.

6. Relation of Earnings to Insurance

If disability income benefits from all disability income policies for the same loss exceed the
insured's monthly earnings at the time of disability, the relation of earnings provision states that
the insurer is liable only for that proportionate amount of benefits as the insured's earnings
bear to the total benefits under all such coverage.

7. Unpaid Premiums

If there is an unpaid premium at the time a claim becomes payable, the amount of the premium
is to be deducted from the sum payable to the insured or beneficiary.

 

8. Cancellation

• Though prohibited in a number of states, the provision for cancellation gives the
company the right to cancel the policy at any time with 45 day's written notice to the insured

• This notice must also be given when the insurer refuses to renew a policy or change the premium rates

• If the cancellation is for nonpayment of premium, the insurer must give 10 day's written
notice to the insured, unless the premiums are due monthly or more frequently

• The cancellation provision also allows the insured to cancel the policy any time after the
policy's original term has expired

9. Conformity with State Statutes

Any policy provision that is in conflict with state statutes in the state where the insured lives at
the time the policy is issued is automatically amended to conform with the minimum statutory
requirements.

 

10. Illegal Occupation

The illegal occupation provision specifies that the insurer is not liable for losses attributed to
the insured’s being connected with a felony or participation in any illegal occupation.

11. Intoxicants and Narcotics

The insurer is not liable for any loss attributed to the insured while intoxicated or under the
influence of narcotics.

• Losses due to injuries sustained while committing a felony, or attempting to do so, also may be
excluded

• Foreign travel may not be excluded in every instance, but extended stays overseas or foreign
residence may cause a loss of benefits

►OTHER HEALTH INSURANCE POLICY PROVISIONS

There are a number of other very important clauses and provisions that should be noted:

 

Insuring Clause

• The insuring clause is the part of the health insurance policy that states the kind of benefits provided
and the circumstances under which they will be paid

• The purpose of the insuring clause is to specify the scope and limits of the coverage provided

Consideration Clause

In health insurance, the insurance company exchanges the promises in the policy for a two-part
consideration from the insured. (Consideration is an exchange of something of value on which a
contract is based). A health insurance contract is valid only if the insured provides consideration in the form of:

• The initial full minimum premium required
• The statements made in the application

Unpaid Provision

The unpaid premium provision permits an insurer to deduct any unpaid premium (usually due during the grace period) from a benefit payable to the insured.

Conversion Privilege for Dependents

• Beginning October 1, 2010, the Affordable Health Care Act mandated that all policies and plans
must provide dependent coverage up to age 26

 

• Adopted children, stepchildren, and foster children usually are eligible for coverage

• As long as a policy is in force, coverage for a child generally continues until the child marries or
reaches the limiting age

Waiver of Premium

The Waiver of Premium provision waives the payment of premiums after the insured has been
totally disabled for the specified period of time. The following disabling acts are usually excluded from this provision: self-inflicted injuries, wartime or military service injuries, and injuries received during the commission of a crime.

Probationary Period

The Probationary Period provision in a health insurance contract becomes effective at the inception of
the policy.

►COMMON EXCLUSIONS OR RESTRICTIONS

Health insurance policies frequently cite a number of exclusions or conditions that are not covered.

• The common ones are injuries due to war or an act of war, self-inflicted injuries, and
those incurred while the insured is serving as a pilot or crew member of an aircraft

 

• Other exclusions are losses resulting from suicide, hernia (as an accidental injury), riots, or the
use of drugs or narcotics

• Losses due to injuries sustained while committing a felony, or attempting to do so, also may be excluded

• Foreign travel may not be excluded in every instance, but extended stays overseas or foreign
residence may cause a loss of benefits

• Occupational injuries and illnesses are covered by Workers’ Compensation and typically excluded

• The exclusions section is NOT included in the policy face (first page of an insurance policy)

Preexisting Conditions

• Medical expense and disability income policies usually exclude paying benefits for losses due to
preexisting conditions pertaining to illness, disease, or other physical impairments

• Such exclusions are subject to the "time limit on certain defenses" provision. Any preexisting
condition that the insured has disclosed clearly in the application usually is not excluded or, if it
is, the condition is named specifically in an excluding waiver or rider

 

Waivers for Impairments

When an insurance company does not cover an insured's loss due to a preexisting condition, this is
called an impairment rider.

• If the insured's condition improves, the company may be willing to remove the waiver

►RENEWABILITY PROVISIONS

Generally speaking, the more favorable the renewability provision is to the insured policyholder, the
higher the premium.

Cancellable Policies

• Coverage under a cancelable health insurance policy may be terminated by either the insured or the insurer

• The renewability provision in a cancellable policy allows the insurer to cancel or terminate the policy at anytime

• Cancellable policies also allow the insurer to increase premiums

 

Optionally Renewable Policies

The renewability provision in an optionally renewable policy gives the insurer the option to review
the policy and terminate the policy on a date specified in the contract.

Conditionally Renewable Policies

• A conditionally renewable policy allows an insurer to terminate the coverage but only in the
event of one or more conditions stated in the contract

• They typically are related to the insured reaching a certain age or losing gainful employment

• A conditionally renewable policy can increase premiums at time of renewal

Guaranteed Renewable Policies

The renewal provision in a guaranteed renewable policy specifies that the policy must be renewed (as
long as premiums are paid) until the insured reaches a specified age

• Guaranteed renewable policies normally have increasing premiums

 

Nonrenewable Policies

Nonrenewable policies are normally associated with short-term health insurance. These are policies
that are for established policy lengths of a year or less and are considered temporary.

Noncancellable Policies

• A noncancellable policy cannot be cancelled nor can its premium rates be increased under
any circumstances

• Noncancellable provisions are most commonly found in disability income policies. They are
rarely used in medical expense policies

• Noncancellable policies may not be changed in anyway by the insurer up to a specified age, so long as the
premiums are paid