Other health policy provisions: other benefits, unpaid premium, cancellation, conformity, illegal occupation, intoxicants, and relation of earnings

The optional provisions: what they are

Every individual health policy carries a set of mandatory provisions (entire contract, grace period, reinstatement and the claim provisions). Alongside them sits a second list the insurer may include if it chooses: the optional provisions. The insurer does not have to use any of them. But if it does put one in the policy, it cannot write its own version. It must use the statutory wording, or a different wording the insurance regulator approves that is not less favorable in any respect to the insured or the beneficiary. Each one must also appear under its proper caption.

The optional list covers change of occupation, misstatement of age, other insurance in this insurer, insurance with other insurers, relation of earnings to insurance, unpaid premium, cancellation, conformity with state statutes, illegal occupation, and intoxicants and narcotics. This lesson covers the last seven.

Other benefits: avoiding over-insurance

Three provisions stop an insured from collecting more than the loss.

• Other insurance in this insurer. If the insured holds more than one policy with the same company and the total coverage exceeds the maximum the insurer allows, the excess coverage is void and the insurer refunds the premiums paid for it.
• Insurance with other insurers. If the insured has other valid coverage with another company that the insurer was not told about, the insurer pays only its proportionate share of the loss and refunds the premium for the excess. Benefits under a compulsory benefit statute, such as workers' compensation, always count as other valid coverage the insurer knew about. Third-party liability coverage never counts.
• Relation of earnings to insurance (the average earnings clause). This applies to disability income (loss of time) benefits. If total monthly disability benefits from all valid loss-of-time coverage exceed the greater of the insured's monthly earnings when disability began or average monthly earnings over the prior two years, the insurer pays only a proportionate share and refunds the excess premium paid during those two years. It can never cut total monthly benefits below $200 or the sum of the monthly benefits, whichever is less. It affects loss-of-time benefits only. And it may be used only in a policy the insured can keep in force by paying premiums until at least age 50, or for at least five years if the policy was issued after age 44.

Administrative provisions

• Unpaid premium. When the insurer pays a claim, it may deduct any premium then due and unpaid from the payment.
• Cancellation. Within the first 90 days after the date of issue, the insurer may cancel by written notice, delivered or mailed first class, effective not less than 10 days later. It must promptly return the pro-rata unearned premium, and cancellation does not affect any claim that arose before it took effect. An insurer may also give the insured the right to cancel at any time, with the refund figured on a short-rate basis.
• Conformity with state statutes. Any provision that, on the policy's effective date, conflicts with the laws of the state where the insured lives on that date is automatically amended to meet that state's minimum requirements. The policy is not voided; it is corrected.

Exclusions for the insured's own conduct

• Illegal occupation. The insurer is not liable for a loss where a contributing cause was the insured committing or attempting a felony, or being engaged in an illegal occupation. The illegal act need only contribute; it does not have to be the sole cause.
• Intoxicants and narcotics. The insurer is not liable for a loss sustained in consequence of the insured being intoxicated or under the influence of a narcotic, unless the narcotic was taken on the advice of a physician.

Exam tip: optional means the insurer chooses whether to include it. Once included, the wording is fixed or must be at least as favorable to the insured.