Optional Policy Provisions | Achievable Life & Health

As the name implies, optional provisions can be included or excluded from a policy at the insurer’s discretion. The 11 optional policy provisions are as follows:

Change of Occupation

If the insured changes to a more hazardous job, benefits may be reduced. If the insured changes to a less hazardous job, premiums may be reduced.

Misstatement of Age

Benefits will be adjusted to reflect what the premiums would have purchased if the insured’s correct age had been stated on the application.

Other Insurance with the Same Insurer

If the policyowner has two or more policies with the same insurer, the insurer will coordinate benefits so that no more than 100% of the loss is paid. Premiums for coverage in excess of benefits paid will be refunded.

Expense Insurance with Other Insurers

Applies when the insured has expense-type policies (such as hospital or surgical coverage) with more than one company. The insurers will coordinate benefits so that total reimbursement does not exceed 100% of the actual medical expenses.

Income Insurance with Other Insurers

Applies when the insured has disability income coverage with more than one company. The insurers will coordinate benefits so the total disability benefits do not exceed the insured’s actual earned income.

Relation of Earnings to Insurance

Ensures disability income benefits do not exceed the insured’s actual earned income, reinforcing the principle of indemnity.

Unpaid Premiums

Allows the insurer to deduct any premium due but unpaid from the amount of a claim. This often applies if a claim occurs during the grace period.

Cancellation

Allows the insurer to cancel the policy with proper notice and requires any unearned premium to be refunded to the policyowner.

Conformity with State Statutes

Any policy provision that conflicts with state law is automatically amended to conform with the statutes of the state where the insured resides.

Illegal Occupation

No coverage is provided if a claim arises from the insured committing a felony or engaging in an illegal occupation.

Intoxicants and Narcotics

No coverage is provided if a claim occurs while the insured is intoxicated or under the influence of non-prescribed drugs.

Eleven optional health policy provisions

Other General Provisions

Free Look (Right to Examine)

Under this provision, the insured may return the policy to the agent or the insurer within 10 days of delivery (30 days for LTC and Medigap policies) and receive a full refund of premiums paid.

Insuring Clause

This is customarily found on the first page of the policy. It defines the benefits and policy periods and states the insurer’s promise to pay benefits if coverage is provided by the policy and all conditions are satisfied.

Consideration Clause

The amount and frequency of premium payment and the representations made by the applicant are spelled out, as is the insurer’s obligation to pay the benefits.

Assignment of Benefits Provision

This provision defines the benefit amounts to be paid in the event of a covered loss. Many times, the beneficiary of a health reimbursement policy prefers that the insurer pay the doctor/hospital directly. If either will accept assignment of benefits, the insurer will pay them directly in the name of the insured.

Waiver of Premium

Disability income policies usually include this option, which exempts the insured from paying premiums if totally and permanently disabled. Other types of policies may also make this option available, for an additional premium.

Lesson Summary

In an insurance policy, optional provisions can be included or excluded at the discretion of the insurer.

Optional Policy Provisions:

Change of Occupation: Benefits or premiums may be adjusted if the insured changes to a job with a different risk level.
Misstatement of Age: Benefits are adjusted to what the correct age and premium would have purchased.
Other Insurance with the Same Insurer: Prevents double recovery if the insured has more than one policy with the same company.
Expense Insurance with Other Insurers: Coordinates medical expense coverage between insurers so payments don’t exceed actual bills.
Income Insurance with Other Insurers: Coordinates disability income coverage between insurers so total benefits don’t exceed earnings.
Relation of Earnings to Insurance: Disability benefits cannot exceed the insured’s actual earned income.
Unpaid Premiums: Any unpaid premium may be deducted from a claim payment.
Cancellation: Insurer may cancel with proper notice and must refund any unearned premium.
Conformity with State Statutes: Policy automatically amends to meet state insurance laws.
Illegal Occupation: No coverage if the insured is injured while committing a felony or engaging in illegal work.
Intoxicants and Narcotics: No coverage if the insured is injured while intoxicated or using non-prescribed drugs.

Chapter Vocabulary

Definitions

Cancellable Policy: A policy that may be terminated either by the insured or the insurance company by notification to the other party in accordance with the terms of the policy.
Cancellation: Short rate cancellation is utilized when an insured decides to cancel an insurance contract, and pro-rata is used when an insurer cancels the contract.
Coordination of Benefits (COB): The method of determining which company pays as primary insurer and which company pays as secondary or excess insurer when a working couple or their dependents have a claim covered by more than one insurance contract.
Free-Look Period: A period of time during which the purchaser of an insurance policy or annuity can cancel the contract with no penalty. The number of days varies by product.
Guaranteed Renewable: The option of renewal to a specified age, or for a lifetime, vested solely in the insured. However, the insurance company has the right to increase the premiums applicable to an entire class of policyholders.
Insuring Clause: The policy provision, usually found on the first page, that defines the scope of coverage and contains the insurer’s promise to pay benefits if the covered loss occurs.
Noncancellable: A policy that an insurance company is not permitted to terminate or amend during its term (except for non-payment of a premium).
Optionally Renewable: Policies that are renewable at the option of the insurance company.
Other Insurance Clause: A provision found in many life and health insurance policies, stating the disposition of claims when any other insurance contract covers the same events as the policy in which the provision is contained.
Pro-rata Cancellation: When a policy is canceled midterm, unearned premiums must be refunded to the policy owner. A pro-rata refund is due if the insurer cancels.
Pro-rata (proportional) Reinsurance: Portion of the losses and premium reinsurer shares with the ceding entity.
Reduction of Benefits: Automatic reduction in coverage under certain specified conditions (i.e., after the insured has reached age 60).
Relation of Earnings to Insurance: A provision in the policy that permits the insurance company to reduce the monthly income disability benefits payable if the insured’s total income from benefits exceeds either his/her current monthly earnings or his/her average monthly earnings during the 2 year period immediately preceding the disability.
Unearned Premium: Amount of premium for which payment has been made by the policyholder but coverage has not yet been provided.