Policy Provisions
MR. WATSON: This chapter is a MUST know chapter. No way around this. Know it, you will see a lot of questions on this.
MR. WATSON: The National Association of Health Insurance Commissioners came out with 12 mandatory and 11 optional policy provisions. Most states adopted these. The purpose was to establish uniform or model terms and wording. The 12 mandatory provisions protect the interests of the insured, the 11 optional protect the interests of the insurance company.
MR. WATSON: So every individual health insurance policy issued in the state must contain the 12 mandatory provisions. The only way the wording can be changed is if the wording is more favorable to the insured. Does that make sense?
ALL: Um-hmm.
MR. WATSON: Here is a 12-letter acronym to remember the 12 mandatory provisions.
MR. WATSON: The acronym is "G BENT CLIPPER." This works if you let it work. It's pretty good stuff. You absolutely need to know these.
MR. WATSON: Each one of these, we aren't going in order, but each one of these is for the 12 mandatory policy provisions:
- G - Grace Period 7-10-31
- B - Beneficiary
- E - Entire Contract
- N - Notice of Claim
- T - Time of Payment of Claims
- C - Claim Forms
- L - Legal Action
- I - Incontestable (time limit on certain defenses)
- P - Proof of Loss
- P - Payment of Claims
- E - Exam or Autopsy
- R - Reinstatement
Entire Contract Provision
MR. WATSON: The "E." That stands for "Entire contract provision."
MR. WATSON: The entire contract provision is a statement in the policy that says all of these things must be in in the policy document given to the customer:
- policy document,
- the application, and
- any riders or endorsements.
Nothing outside of the entire contract can be used in a court of law. The way they say this is that “nothing may be incorporated by reference,” and you definitely need to be familiar with that statement and know that the entire contract provision is where it’s found.
MR. WATSON: If the application is not attached to the policy, can we use your statements against you in a court of law?
ALL: No.
Incontestable Clause (Time Limit on Certain Defenses)
MR. WATSON: The "I." "Incontestable clause."
This is also called the Time Limit on Certain Defenses provision, and you need to know that name. Remember, this meant that, during the first two years of the policy, the insurance company could challenge statements you made on the application and deny the claim for fraud, meaning you misrepresented a material fact. After two years we are stuck with you, even if we can prove you lied.
MR. WATSON: Now, Beer Drinker earlier asked if health insurance policies have the two-year incontestable clause. I said no. Many health policies don’t have an incontestable clause, but it depends on the type of policy
MR. WATSON: Guaranteed renewable policies have an incontestable clause. Remember, guaranteed renewable policies allow the insurance company to increase the premiums (only by class) but allow the insured to continue his/her coverage. These have a two year incontestable clause. But, a policy that is not guaranteed renewable does NOT have a two year incontestable period. Those types of health policies do not have an incontestable period. We can challenge your statements at any time and possibly deny the claim. Fortunately, there are very few of them.
MR. WATSON: But disability income policies, (non-cancellable policies) they do have an incontestable period. They can not be contested after two years.
MR. WATSON: If a policy is NOT a guaranteed renewable policy, there is no incontestable clause, and statements made in the application may be challenged at any time. It means we can challenge it, even after the first two years.
MR. WATSON: So there's an incontestable period for guaranteed renewable policies. After two years we can't challenge your statements on your application. Do you agree?
ALL: Yes.
MR. WATSON: Disability policies, the premiums don't go up, so there's an incontestable period. What about major medical insurance premiums? Most are guaranteed renewable. No. Then we can not challenge them after two years.
Grace Period
MR. WATSON: The "G", Grace period. 7/10/31. This lets you pay your premium late and you’re still covered. This is the period of time after the policy has been in force that you still have coverage even though you have not paid the premium when it was due. If the claim happens during the grace period, they will pay the benefit and subtract the premium from the benefit. You're still covered. The amount of time you’re given for the grace period depends on the mode (or frequency) of the premium:
- weekly premium policy, seven (7) days,
- monthly, ten (10) days,
- all others 31 days.
Two exceptions to this you need to know are long-term care and Medicare supplements. Those both have 30-day grace periods, no matter how often you pay the premium. We just talked about those not long ago.
MR. WATSON: Question. Do the premium payments dictate the grace period? Yes, they do. Do you agree?
ALL: Yes.