Introduction to Optional Provisions
In the world of health insurance, the Uniform Individual Accident and Sickness Policy Provisions Law established a set of standards to ensure consistency across policies. While there are 12 mandatory provisions that must be included in every individual health policy, there are also 11 optional provisions. These are designed to protect the insurer, but they must follow specific wording if the insurer chooses to include them.
For candidates preparing for the complete Accident & Health exam guide, understanding these optional clauses is critical. They often appear in scenario-based questions where you must determine how a benefit amount changes based on an insured's actions or changes in circumstances. If you want to test your knowledge on these specific clauses, you can find them in our practice Accident & Health questions.
Provisions Adjusting Benefits: Occupation and Age
Two of the most frequently tested optional provisions involve changes that affect the risk profile of the insured: Change of Occupation and Misstatement of Age.
- Change of Occupation: If an insured moves to a more hazardous job, the insurer can reduce the benefits to what the premium would have purchased for the higher-risk job. Conversely, if the insured moves to a less hazardous occupation, they may apply for a premium reduction.
- Misstatement of Age: If the insured lied about their age on the application, the insurer does not cancel the policy. Instead, they adjust the benefits to what the premium paid would have purchased at the correct age.
Benefit Adjustments Comparison
| Feature | Provision | Reasoning | Action Taken |
|---|---|---|---|
| Change of Occupation | Increased risk (Hazardous job) | Benefits reduced to match premium | |
| Misstatement of Age | Incorrect rating at inception | Benefits adjusted to correct age | |
| Illegal Occupation | Criminal activity involvement | Claim denied entirely |
Financial and Over-Insurance Provisions
Insurers include certain provisions to prevent "over-insurance," which occurs when an insured could potentially profit from a loss. Health insurance is intended to be a contract of indemnity—restoring the insured to their prior financial state, not providing a windfall.
- Other Insurance in This Insurer: Limits the total amount of coverage an insured can have with a single company to prevent excessive payouts.
- Insurance with Other Insurers: If an insured has multiple policies covering the same loss, the insurers will pay a proportionate share of the claim. This applies to both expense-incurred and non-expense-incurred (indemnity) bases.
- Relation of Earnings to Insurance: Common in disability income policies, this provision limits the monthly benefit to the insured's average earnings over a set period (often two years) prior to the disability.
- Unpaid Premium: If a claim occurs during the grace period, the insurer can deduct any past-due premium from the final claim settlement.
Exam Tip: Pro-Rata vs. Short-Rate
When studying the Cancellation provision, remember that if the insurer cancels, they must return premiums on a pro-rata basis (no penalty). If the insured cancels, the insurer returns premiums on a short-rate basis, which includes a fee for administrative costs.
Behavioral and Legal Exclusions
The final group of optional provisions deals with the legality of the insured's actions at the time of the loss. These clauses allow the insurer to deny liability entirely under specific circumstances.
- Conformity with State Statutes: This provision automatically amends any policy provision that conflicts with the laws of the state where the insured resides. This ensures the policy is always legally compliant.
- Illegal Occupation: The insurer is not liable for any loss that occurs while the insured is committing a felony or engaged in an illegal occupation.
- Intoxicants and Narcotics: The insurer is not liable for losses sustained while the insured is under the influence of alcohol or narcotics, unless administered on the advice of a physician.