Recap of Chapter Eight

1. Health insurance (also known as accident and health insurance) provides financial protection against losses resulting from accidental injuries and medical conditions caused by disease or illness. This type of insurance helps cover medical expenses and other costs associated with health-related events. 8.1

2. Disability income insurance provides periodic income benefits—typically paid weekly or monthly—to individuals who are unable to work due to a covered accident or illness. The benefit amount is usually calculated as a percentage of the insured’s prior earnings or may be provided as a fixed dollar amount, depending on the policy. 8.1

3. Accidental Results coverage defines a loss based solely on the unintended outcome of an event, even if the action that led to the injury was intentional. If the resulting injury was not deliberately intended by the insured, the loss may still be covered under the policy. 8.1

4. Accidental Means coverage defines a loss based on both the cause of the event and the resulting injury. For a claim to be paid under this definition, both the cause and the outcome must be accidental and unforeseen. Because this definition is more restrictive, its use is limited or prohibited in some states. 8.1

5. A Morbidity Table is a statistical tool used to estimate the probability of illness or disability within a specific population. Insurers rely on morbidity tables to project expected claim costs and determine appropriate premium rates. These tables are comparable to mortality tables, which are used in life insurance to estimate the probability of death. 8.1

6. Pre-existing conditions are medical conditions for which an individual received treatment, medical advice, or a diagnosis within a specified period before the policy’s effective date. Policies may impose limitations or waiting periods on coverage for these conditions. 8.1

7. A probationary period is the period of time beginning on the first day a new health insurance policy becomes effective during which coverage is not provided for illnesses or sickness-related claims. This waiting period is designed to prevent individuals from obtaining insurance only after becoming ill. 8.1

8. Sickness refers to any non-accidental illness or disease that begins after the policy has been in force for a specified period, typically at least 30 days following the effective date of the policy. 8.1

9. Health insurance claims are generally subject to subrogation, which is the insurer’s legal right to recover claim payments from a responsible third party. If a third party is responsible for the insured’s loss, the insurer may pay the claim initially but has the right to seek reimbursement from the responsible party for up to 100% of the amount paid. 8.1

10. An Accidental Death and Dismemberment (AD&D) policy is a limited type of health insurance that provides benefits for accidental death, loss of sight, or loss of limbs resulting from an accident. AD&D coverage may also be offered as a rider attached to disability income, medical expense, or life insurance policies. 8.2

11. The principal sum is the maximum benefit amount payable under an AD&D policy. This benefit is typically paid in the event of accidental death or double dismemberment, such as the loss of two limbs or total loss of sight. 8.2

12. The capital sum is the benefit amount payable for partial dismemberment losses, such as the loss of one limb or sight in one eye, which are considered less severe than losses covered by the principal sum. 8.2

13. Health insurance coverage is available in both individual and group formats. Most coverage is provided through private health insurance companies, although government-sponsored programs also provide coverage for eligible individuals. Examples include Medicare, Medicaid, and TRICARE, which serves military members and their families. 8.3

14. Health and disability insurance policies are generally classified as either limited or comprehensive, depending on the scope and amount of benefits provided. Comprehensive policies offer coverage for a wider range of medical or disability-related losses and typically include higher policy limits, while limited policies provide coverage for specific risks or services. 8.3

15. Insurance advertising is regulated to ensure that information provided to the public is accurate, complete, and not misleading. These regulations also help prevent unfair competition and establish a minimum standard of professional conduct within the industry. Insurers are required to maintain copies of all advertisements used in promoting their insurance products. 8.4

16. The solicitation of health and disability insurance by telephone is regulated under the Telephone Sales Rule. Unless a consumer has given prior permission to be contacted, a producer may not call individuals whose telephone numbers are listed in the federal Do Not Call Registry. 8.4

17. Health insurance is generally more vulnerable to adverse selection than life insurance, meaning individuals with a higher likelihood of illness may be more inclined to purchase coverage. For this reason, insurers rely on producers to carefully review and verify application information. This process, known as field underwriting, is the initial step in evaluating an applicant’s insurability. 8.5

18. Both the producer and the applicant must sign the application for health or disability insurance. Depending on the insurer’s procedures, the applicant may either complete the application in the presence of the producer or the producer may complete the application based on the applicant’s responses. 8.5

19. Submitting an incomplete application can delay the underwriting process and postpone the issuance of the policy. Applicants must ensure that the information provided on the application is accurate, truthful, and complete to the best of their knowledge. 8.5

20. If a policy is issued even though certain questions on the application remain unanswered, the insurer is considered to have waived the right to obtain that information. In such cases, coverage will still be provided, and the missing information cannot later be used as a basis to deny a claim. 8.5

21. Consideration, in the form of the initial premium payment, is required for an insurance policy to become effective. Coverage generally begins once the application has been approved and the policy has been formally issued by the insurer. 8.6

22. Health insurance applications are subject to standard notices regarding information collection practices. The Medical Information Bureau (MIB) must provide applicants, upon request, with an explanation of the information used in underwriting decisions. This allows applicants to review and verify the accuracy of any information that may have contributed to the denial of coverage. 8.5

23. Insurance producers are often required to obtain and maintain Errors and Omissions (E&O) insurance, which protects against claims arising from professional mistakes or negligence. Examples of negligence include misrepresenting coverage, providing inaccurate information, or quoting incorrect policy details. Inadequacy may occur when a producer fails to recommend or obtain the appropriate type or amount of coverage for a client’s needs. 8.4

24. Replacing an existing health, disability income, or long-term care insurance policy requires careful comparison of the coverage limits, benefits, exclusions, and policy provisions of both the existing and proposed policies. 8.6

25. When a policy is replaced, the new policy may impose new probationary periods or exclusions for pre-existing conditions. For this reason, the producer must ensure that the existing policy is not canceled until the replacement policy has been issued and is in force. 8.6