Ch. 1 - Health and Accident Insurance

Question 1

Health Insurance

Answer 1

A general way of describing insurance against loss through sickness or accidental bodily injury. It is also called accident and health, accident and sickness, sickness and accident, or disability insurance. It is important to remember the general term “health insurance” applies to many different types of insurance, not just the medical insurance that pays for doctor and hospital visits.

Question 2

Disability (Income) Insurance

Answer 2

A form of insurance that insures the beneficiary’s earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work. Although disability insurance is designed to protect one’s income, there are typically rules and regulations in place limiting the benefits of a disability policy to one’s income level, and typically only allowing protection for a portion of their income.

Question 3

Medical Expense Insurance

Answer 3

Pays benefits for nonsurgical doctors’ fees commonly rendered in a hospital; sometimes pays for home and office calls.

Question 4

Interim Coverage

Answer 4

A short-term policy purchased on an interim basis typically when in between jobs or waiting for a new policy to start.

Question 5

Accidental Death and Dismemberment Insurance

Answer 5

(AD&D insurance) is the purest form of accident insurance. It provides the insured with a lump-sum benefit amount in the event of accidental death or dismemberment under accidental circumstances.

Question 6

Nonparticipating Plan

Answer 6

A Nonparticipating plan is Insurance under which the insured is not entitled to share in the divisible surplus of the company.

Question 7

Participating Plan

Answer 7

A Participating Plan of insurance is a plan under which the policy owner receives shares (commonly called dividends) of the divisible surplus of the company.

Question 8

The Patient Protection and Affordable Care Act

Answer 8

The Patient Protection and Affordable Care Act was designed to increase health insurance quality and affordability, lower the uninsured rate by expanding insurance coverage and reduce the costs of healthcare. It introduced mechanisms including mandates, subsidies and insurance exchanges. The law requires insurers to accept all applicants, cover a specific list of conditions and charge the same rates regardless of pre-existing conditions or sex. The Patient Protection and Affordable Care Act, often shortened to the Affordable Care Act (ACA) and nicknamed Obamacare, only applies to specific medical coverage. It does NOT apply to ALL health insurance policies.

Question 9

Group Health Insurance

Answer 9

Insurance that provides coverage for a group of persons, usually employees of a company, under one master contract. group health plans are available to employers, trade and professional associations, labor unions, credit unions, and other organizations. Insurance is extended to individuals in the group through the master contract. This normally does not require individual underwriting nor evidence of insurability. The employer or the association is the policyowner and is responsible for premium payments. The employer may pay the entire premium or may require some contribution from each member to cover the insurance cost.

Question 10

Renewability Provisions

Answer 10

Renewability Provisions define the rights of the insurer to cancel the policy at different points during the life of the policy. There are five principal renewability classifications: cancellable, optionally renewable, conditionally renewable, guaranteed renewable, and noncancellable. Generally speaking, the more advantageous the renewability provisions to the insured, the more expensive the coverage.

Question 11

Cancellable Policies

Answer 11

Cancellable Policies allow the insurer to cancel or terminate the policy at any time. This type of renewability is prohibited in most states.

Question 12

Optionally Renewable Policies

Answer 12

Optionally Renewable policies give the insurer the option to terminate the policy on a date specified in the contract. If the insurer decides to renew (not cancel) the policy, they also have the option (and usually choose to) increase the premiums on the anniversary date.

Question 13

Conditionally Renewable Policies

Answer 13

Conditionally Renewable policies give the insurer the option to terminate the policy only in the event of one or more conditions stated in the contract. Typically, these conditions are age related. If the insurer decides to renew (not cancel) the policy, they also have the option (and usually choose to) increase the premiums on the anniversary date.

Question 14

Guaranteed Renewable Policies

Answer 14

Guaranteed Renewable policies specify that the policy MUST be renewed (usually until the insured reaches a specified age). However, the insurer still has the option (and usually choose to) increase the premiums on the anniversary date. Medicare supplement policies and long-term care policies are the most common types of guaranteed renewable policies.

Question 15

Noncancellable Policies

Answer 15

Noncancellable Policies state the policy cannot be cancelled nor can its premium rates be increased under any circumstances. Disability policies are the most common noncancellable (noncan) policies.

Question 16

Nonrenewable Policies

Answer 16

Nonrenewable policies are for established policy lengths of a year or less (typically short-term health insurance) and are considered temporary.

Question 17

Cafeteria Plans

Answer 17

Benefit arrangements in which employees can pick and choose from a menu of benefits, thus tailoring the benefits package to their specific needs. Taxation of cafeteria plans is regulated by Section 125 of the Internal Revenue Code, thus sometimes cafeteria plans are referred to as a Section 125 plan.

Question 18

Business Continuation Plans

Answer 18

Provide a way to help a business continue in the event an owner or key employee dies, or in the event of a disabling sickness or injury.

Question 19

Business Overhead Expense Insurance

Answer 19

A form of disability income coverage designed to pay necessary business overhead expenses, such as rent, should the insured business owner become disabled. Overhead expenses include such things as rent or mortgage payments, utilities, telephones, leased equipment, employees’ salaries, and the like. This includes all the expenses that would continue and must be paid, regardless of the owner’s disability. Business overhead expense policies do not include any compensation for the disabled owner.

Question 20

Disability Buy-Sell Plans

Disability Buy-Out Agreement

Answer 20

Agreements between business co-owners that provides that sharesowned by any one of them who becomes disabled shall be sold to and purchased by the other co-owners or by the business using funds from disability income insurance. The buy-out plan usually contains a provision allowing for a lump-sum payment of the benefit, thereby facilitating the buyout of the disabled’s interest. The policy is legally binding and proceeds are normally received tax-free.

Question 21

Key Person Disability Insurance

Answer 21

Key Person Disability Insurance is the protection of a business against financial loss caused by the death or disablement of a vital number of the company, usually individuals possessing special managerial or technical skill or expertise. This type of coverage pays a monthly benefit to a business to cover expenses for additional help or outside services when an essential person is disabled. Benefits are received by the business tax-free because the premium paid is not tax deductible.

Question 22

Noncontributory

Answer 22

An employee benefit plan under which the employer bears the full cost of the employees’ benefits; in most states, the plan must insure 100% of eligible employees

Question 23

Contributory

Answer 23

A group insurance plan issued to an employer under which both the employer and employees contribute to the cost of the plan. Generally, 75% of the eligible employees must be insured in most states.

Question 24

Coordination of Benefits

Answer 24

Coordination of benefits is designed to prevent duplication of group insurance benefits. Limits benefits from multiple group health insurance policies in a particular case to a % of the expenses covered and designates the order in which the multiple carriers are to pay benefits.

Question 25

Enrollment Period

Answer 25

The limited period of time during which all members may sign up for a group plan. This is period typically happens once a year for a set number of days.

Question 26

An Enrollment Card

Answer 26

An Enrollment Card must be completed and signed by a new employee during the open enrollment period to enroll in group insurance.

Question 27

Waiting Period

Answer 27

A period of time (often 12 months) beginning with your effective date during which your health insurance plan does not provide benefits for pre-existing conditions. This period may be reduced or waived based on any prior health care coverage you had before applying for your new health insurance plan.

Question 28

Probationary Period

Answer 28

A specified number of days after an insurance policy’s issue date during which coverage is not afforded for sickness. Standard practice for group coverages as well as disability coverage. The probationary period typically does NOT apply to accidents. The real goal of this provision is to prohibit people from buying insurance only when they need it and immediately filling a claim, otherwise known as adverse selection.

Question 29

Health Insurance Portability and Accountability Act (HIPAA)

Answer 29

Provides the ability to transfer and continue health insurance coverage for millions of American workers and their families when they change or lose their jobs. The HIPAA Privacy Rule provides federal protection for an individual’s health information and gives patients an array of rights with respect to that information. The HIPAA Security Rule provides technical safeguards to assure the confidentiality, integrity, and availability of electronic protected health information.

Question 30

Conversion Privilege

Answer 30

Allows a policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue). Conversion is a common privilege for term life insurance and all group insurance. The insured does not have to prove insurability (good health) when converting a policy.

Question 31

Preexisting Conditions

Answer 31

Preexisting conditions is an illness or medical condition that existed before a policy’s effective date; usually excluded from coverage, through the policy’s standard provisions or by waiver. Under HIPAA, are defined as health issues that existed, were treated, or diagnosed within 6 months prior to employment. An enrollee’s pre- existing conditions for a health benefit plan may be excluded for up to 12 months (18 months for late enrollees). A late enrollee is an individual who elects coverage after the initial eligibility period.

Question 32

Creditable Coverage

Answer 32

Creditable Coverage is previous coverage under another insurance plan when there has not been a break in coverage of 63 days. An individual’s waiting period for pre-existing conditions is reduced or eliminated altogether when he or she has creditable coverage.

Question 33

Consolidated Omnibus Budget Reconciliation Act of 19885 (COBRA)

Answer 33

Federal legislation which extends group health coverage to terminated employees and/or their families at the individual’s expense, for up to 18 months. COBRA coverage may be extended beyond 18 months in certain circumstances. COBRA rules typically apply when an employee loses coverage through loss of employment (except in cases of gross misconduct) or due to a reduction in work hours. COBRA benefits also extend to spouses or other dependents in case of divorce or the death of the employee. Children who are born to, adopted, or placed for adoption with the covered employee while he or she is on COBRA coverage are also entitled to coverage. All companies that have averaged at least 20 full-time employees over the past calendar year must comply with COBRA regulations.

Question 34

Blanket Health Policies

Answer 34

Issued to cover a group who may be exposed to the same risks, but the composition of the group (the individuals within the group) are constantly changing. A blanket health plan may be issued to an airline or a bus company to cover its passengers or to a school to cover its students. No certificates of coverage are issued in a blanket health plan, as compared to group insurance.

Question 35

Franchise Health Plans (Wholesale Plans)

Answer 35

Provide health insurance coverage to members of an association or professional society. Individual policies are issued to individual members and the association or society simply serves as the sponsor for the plan. Premium rates are usually discounted for franchise plans.

Question 36

Credit Policies

Answer 36

Designed to help the insured pay off a loan in the event they are disabled due to an accident or sickness or in the event they die. If the insured becomes disabled, the policy provides for monthly benefit payments equal to the monthly loan payments due. If the insured dies, the policy will pay a lump sum to the creditor to pay off the loan. Credit policies typically cannot exceed the amount of the loan as that is the only amount the creditor has insurable interest in.

Question 37

Nonoccupational Coverage

Answer 37

Coverage provided by a Disability Income policy that does not provide benefits for losses occurring as the result of the insured’s employment.

Question 38

Health Savings Account

Answer 38

A tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). The funds contributed to an account are not subject to federal income tax at the time of deposit. Qualified health care expenses include amounts paid for: Doctors’ fees, Prescription and nonprescription medicines, Necessary hospital services not paid for by insurance, Retiree health insurance premiums, Medicare expenses (but not Medigap), Qualified long-term care services, COBRA coverage. Qualified medical expenses are expenses incurred by the HSA owner, the spouse, and dependents. Nonqualified withdrawals are subject to income taxes and a 20% penalty. HSAs are fully portable, and assets can accumulate over the years. Upon death, HSA ownership may be transferred to a spouse tax free.

Question 39

Accidental Means

Answer 39

Accidental Means is the Unforeseen, unexpected, unintended cause of an accident. Requirement of an accident-based policy that the cause of the mishap must be accidental for any claim to be payable.

Question 40

Accidental Results

Answer 40

Accidental Results are policies that use the accidental bodily injury provision (sometimes called the results provision) required that the result of the injury has to be unexpected and accidental. This is far less restrictive than the accidental means provision.

Question 41

The Principal Sum Under an AD&D

Answer 41

The amount payable as a death benefit. It is the amount of insurance purchased. The principal sum represents the maximum amount the policy will pay.

Question 42

Capital Sum

Answer 42

Another form of payment payable under an AD&D policy and is the amount payable for the accidental loss of sight or accidental dismemberment, or the capital sum. It is a specified amount, usually expressed as a percentage of the principal sum, which varies according to the severity of the injury. For example, the benefit for the loss of one foot or one hand is typically 50% of the principal sum. The most extreme losses (such as both feet or sight in both eyes) generally qualify for payment of the full benefit, which is 100% of the principal sum.

Question 43

Limited Risk Policies

Answer 43

Provides coverage for specific kinds of accidents or illnesses, such as injuries received as a result of travel accidents or medical expenses stemming from a specified disease.

Question 44

Special Risk Policy

Answer 44

Covers unusual hazards normally not covered under ordinary accident and health insurance. An actress who insures her legs for $1 million or a pilot test-flying an experimental airplane who obtains a policy covering his life while flying that particular plane are both purchasing special risk policies.

Question 45

The Beneficiary of an Accidental Death and Dismemberment (AD&D)

Answer 45

The Beneficiary of an Accidental Death and Dismemberment (AD&D) insurance policy is the person or entity designated in the policy to receive the death proceeds.

Question 46

Primary Beneficiary

Answer 46

The Primary Beneficiary is the first in line to receive death benefit proceeds.

Question 47

Secondary (Contingent) Beneficiary

Answer 47

The Secondary (contingent) Beneficiary is second in line to receive death benefit proceeds.

Question 48

Tertiary Beneficiary

Answer 48

The Tertiary Beneficiary is the third in line to receive death benefit proceeds. If no one named, death benefit will go to insured’s estate.

Question 49

Revocable Beneficiary

Answer 49

A beneficiary that the policy owner may change at any time without notifying or getting permission from the beneficiary

Question 50

Irrevocable Beneficiary

Answer 50

An Irrevocable Beneficiary may not be changed without the written consent of the beneficiary. The irrevocable beneficiary has a vested interest in the policy, therefore the policyowner may not exercise certain rights without the consent of the beneficiary.

Question 51

Per Stirpes (By the Bloodline)

Answer 51

Per Stirpes (by the bloodline) means that in the event that a beneficiary dies before the insured, benefits from that policy will be paid to that beneficiary’s heirs.

Question 52

Per Capita (By the Head)

Answer 52

Per Capita (by the head) evenly distributes benefits among all named living beneficiaries.

Question 53

Simultaneous Death Act

Answer 53

States that if the insured and the primary beneficiary die at approximately the same time for a common accident with no clear evidence as to who died first, the Uniform Simultaneous Death Act law will assume that the primary died first, this allows the death benefit proceeds to be paid to the contingent beneficiaries.

Question 54

Common Disaster Provision

Answer 54

Ensures a policyowner if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary. It also states that the primary beneficiary must outlive the insured a specified period of time in order to receive the proceeds.

Question 55

Common Disaster Provision

Answer 55

Ensures a policyowner if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary. It also states that the primary beneficiary must outlive the insured a specified period of time in order to receive the proceeds.

Question 56

Spendthrift Clause

Answer 56

Prevents a beneficiary from recklessly spending benefits by requiring the benefits to be paid in fixed amounts or installments over a certain period of time. A spendthrift clause would have no effect if the beneficiary receives the proceeds as one lump sum payment.