Common Provisions Of Health Insurance

A significant number of the provisions in health insurance contracts are dictated by the Insurance Codes of many states. The Code states what provisions the contracts must contain and those that the insurer may insert at its option. The more important of the various provisions are presented here. 

Cancellation 

The cancellation provision permits an insurer to cancel health insurance at any time by giving written notice not less than five days before the cancellation is to become effective. The insurer must then return to the insured the unearned premium computed by the pro rata method. This provision also permits the insured to cancel at any time after expiration of the original policy and receive a short-rate return of his premium. 

Few insurers use such a restrictive cancellation provision. In fact, competitive pressures have forced them to incorporate very liberal renewal and noncancellation provisions. For example, the noncancellable, guaranteed renewable provision guarantees that the contract will be renewed automatically until some limiting age as long as the insured pays his premium. The insurer is not permitted to cancel the contract as long as the premiums are paid promptly. Furthermore, the premium may not be increased, and limiting riders may not be added to the contract. 

The guaranteed renewable provision is virtually the same as the noncancellable, guaranteed renewable provision except that the insurer is permitted to increase the premium for entire classes of insureds. A class may be based on age, sex, or the date insurance was purchased. 

Other provisions permit cancellation only for reasons other than the deterioration of health, and still others give only the insurer the option of renewal or nonrenewal and permit premium increases or restrictive riders to be stipulated as conditions for renewal. 

Misstatement of Age 

Many contracts contain a provision which in effect stipulates that should an insured misstate his age, the insurer has the right to reduce the amounts payable under the contract to those amounts payable under a contract purchased with the same premium at the correct age of the insured. Change of occupation. Because the risk assumed by an insurer is often changed when the insured changes occupations
(e.g., an insured leaves an office job to take up professional stock-car racing), many insurers include a clause in their health insurance contracts which permits them to reduce benefits accordingly. Benefits are reduced to the level which would be provided in a contract purchased with the same premium considering the rates for the more hazardous occupation.