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Mandatory provisions I: entire contract, incontestability, grace period, reinstatement

Lesson 67 of 105 · All lessons · Up next: Other health policy provisions: other benefits, unpaid premium, cancellation, conformity, illegal occupation, intoxicants, and relation of earnings →

Why these provisions are mandatory

Every individual accident and health policy delivered or issued for delivery in the state must contain a set of mandatory provisions, in the exact words the law sets out. An insurer may substitute different wording only if the insurance regulator approves it and it is not less favorable in any respect to the insured or the beneficiary. Each provision must appear under its proper caption. This lesson covers the first four: entire contract, time limit on certain defenses (incontestability), grace period and reinstatement.

A horizontal timeline runs left to right. At the left, a blue dot marks the date the policy is issued, with a box above it reading entire contract: the policy plus its endorsements and attached papers. Next, a green dot marks a premium due date, followed by a green band labeled grace period of seven, ten or thirty-one days, during which coverage stays in force. A red dot marks the lapse if the premium is still unpaid. Then an orange box labeled reinstatement says the policy comes back when a late premium is accepted, or automatically on day forty-five after a conditional receipt. Below it, two notes say accidents are covered at once and sickness only after ten days. Under the timeline, a bar is split at a dashed line marking two years from issue: before it, misstatements in the application can be contested; after it, only fraud can. A note explains that under the Incontestable version, for policies renewable to age fifty or for five years if issued after forty-four, not even fraud can be contested after two years in force. A footer says no agent or broker can change the policy or waive a provision.
Entire contract, time limit on defenses, grace period and reinstatement on one timeline

Entire contract; changes

The policy, including the endorsements and the attached papers, is the entire contract of insurance. Nothing outside those documents, such as a sales brochure or a producer's verbal promise, is part of the contract.

  • No change is valid until it is approved by an executive officer of the insurer, and that approval must be endorsed on or attached to the policy.
  • No agent or broker has authority to change the policy or to waive any of its provisions.

Time limit on certain defenses (incontestability)

After two years from the date of issue, no misstatement in the application, except a fraudulent misstatement, can be used to void the policy or to deny a claim for a loss or disability that begins after that two-year period. During the first two years, the insurer may still contest material misstatements. The time limit does not override the separate rules on misstatement of age, occupation or other insurance.

The standard provision has a second part: after the same two years, a claim cannot be reduced or denied because a condition existed before the policy's effective date, unless the policy excluded that condition by name or specific description.

A policy the insured can keep in force by paying premiums on time until at least age 50 (or, if issued after age 44, for at least five years) may instead use a stronger clause captioned Incontestable. After the policy has been in force for two years during the insured's lifetime, not counting any period of disability if the policy keeps that optional wording, it becomes incontestable as to the statements in the application. This version has no fraud exception.

Grace period

The grace period applies to each premium due after the first premium. During it, the policy stays in force, so a covered loss in the grace period is paid. The minimum lengths are:

  • 7 days for weekly-premium policies
  • 10 days for monthly-premium policies
  • 31 days for all other policies (quarterly, semiannual, annual)

If the insurer has reserved the right to refuse renewal, the policy must contain a clause under which the grace period is withheld only if written notice of nonrenewal was delivered to the insured, or sent by first class mail, at least 30 days before the renewal date. Notice given later leaves the grace period in place.

Reinstatement

If a renewal premium is not paid within the grace period, the policy lapses. If the insurer or an authorized agent later accepts the premium without requiring an application, that acceptance reinstates the policy.

If the insurer requires an application and issues a conditional receipt for the premium, the policy is reinstated when the insurer approves the application. If the insurer has not sent written notice of disapproval by the 45th day after the receipt, the policy is reinstated on that day.

A reinstated policy covers:

  • Accidental injury sustained after the reinstatement date
  • Sickness that begins more than 10 days after the reinstatement date

Otherwise the parties have the same rights as before the lapse, subject to any endorsements added in connection with the reinstatement. Premiums paid for reinstatement may be applied to an unpaid period, but not to any period more than 60 days before the reinstatement date.

Exam shortcut: entire contract (no agent changes), 2 years (time limit), 7/10/31 (grace), 45 days and 10 days (reinstatement).

Key terms

Sample questions

Under the entire contract provision of an individual health policy, what makes up the entire contract of insurance?

  • The policy plus any sales literature the producer used
  • The policy, including its endorsements and any attached papers
  • The policy plus any statements the producer made at the time of sale
  • The policy alone, with endorsements treated as separate contracts
Reveal answer

Correct answer: The policy, including its endorsements and any attached papers

The entire contract provision says the policy, including the endorsements and the attached papers, if any, constitutes the entire contract of insurance.

An insured asks to change a provision of an individual health policy. Under the entire contract provision, what is required for the change to be valid?

  • Written approval by the producer who sold the policy
  • A signed request from the insured filed with the insurance regulator
  • Verbal agreement between the insured and any employee of the insurer
  • Approval by an executive officer of the insurer, endorsed on or attached to the policy
Reveal answer

Correct answer: Approval by an executive officer of the insurer, endorsed on or attached to the policy

No change is valid until approved by an executive officer of the insurer, and that approval must be endorsed on or attached to the policy.

Under the time limit on certain defenses provision, after what period can a non-fraudulent misstatement in the application no longer be used to void the policy?

  • Two years from the date of issue
  • One year from the date of issue
  • Three years from the date of issue
  • Two years from the date of the first claim
Reveal answer

Correct answer: Two years from the date of issue

After two years from the date of issue, no misstatement, except a fraudulent one, may be used to void the policy or deny a claim for a loss beginning after that period.

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