Most news articles on insurance complain about the big bad insurance companies beating up on the poor, helpless consumer. However, consumers DO have rights that are clearly spelled out in your policy. The insurance industry, policed and led by the NAIC professional guild, adopted 23 standard provisions. This article will outline the 12 mandatory provisions, and a later article will outline the 11 optional provisions.
The 23 standard provisions are:
1) Entire Contract – The policy, the application itself, and the riders (if any) are the whole shebang. Anything not explicit in these pages is not part of your contract between the insurer and yourself. Anything outside of the contract (such as your MIB – Medical Information Bureau – report) cannot be claimed as grounds for denying a claim. Conversely, the agent cannot make changes to the contract.
2) Incontestability Clause – The insurer cannot void the plan due to misrepresentation after the policy has been in effect for two years. BUT outright fraud can be contested indefinitely. Fraud is something that involves impersonation of another person, intent to murder, or having no insurable interest. Example: An insurer can deny payment for concealing a heart attack or bypass, because that is clearly evidence of intent to defraud. Normal pre-existing conditions are covered after those two years, unless specifically excluded by an impairment rider. Another Example: suppose you omit information about hypertension. Say you died eight years later, and the issue of hypertension had never come up, and never was discovered by the insurer. The insurer has to pay your medical bills.
3) Grace Periods – for Health Insurance are 7 days if you have a weekly premium, 10 days if you have a monthly premium, and 31 days if you have a quarterly or longer payment period. (Life insurance has different rules so do not get the two confused.)
4) Reinstatement – If after lapsing, the policy holder is reinstated, then the insurer can request a new application and require that the insured prove insurability. The insurer does not have to require a new application, but if the insurer accepts you without one, then he has to cover you automatically. I predict that this right will be exercised more often in the future, so please do not let your health insurance lapse. The insurer may not collect more than 60 days of past due premiums; this is why they give you just 60 days in which to ask for reinstatement.
5) Notice of Claim – The insured must submit notice of a loss within 20 days or as soon as possible. Ex: This means calling or writing the insurer to say that you had to take your child to the pediatrician for a sprained ankle. See number seven below.
6) Claim Forms – The insurer must send you claim forms within 15 days of receiving notice of claim. Nowadays many companies allow you to download claim forms off their websites.
7) Proof of Loss – The insured (or the provider) has 90 days from the date of loss (your office visit, etc.) to submit their claim along with proof of loss such as doctor bills, etc. Check the specifics in your policy – I have seen insurers who give you 15 months to put in your claim. Keep your certified mail stub or fax confirmation!
8) Timely Payment of Claim – For medical claims, the insurer is generally obligated to give the insured at least an Explanation of Benefits within two days of receipt of the claim. The date of receipt is not necessarily the date that the mail was delivered; it is the date that the keyed or scanned claim is received by the processing department. (On disability claims, the insurer must pay at least monthly.)
9) Payment of Claim – The insurer and provider usually request Assignment of Benefits so that the check goes directly to the provider. There are many policyholders who are very frustrated because they prefer to be reimbursed, and the insurer is set up to pay providers. This is because unfortunately there have been many fraud cases in the insurance business, and so insurers prefer to verify that service was given by Dr. X on Y date for Mr. Z before they disburse funds.
10) Physical exam or autopsy – The insurer can require a physical exam or autopsy before paying a claim. The insurer pays for the exam.
11) Legal Action – The insured has to give the insurer at least 60 days to initiate any legal action. The 60 days starts counting from the time that proof of loss is submitted to the insurer, so save your certified mail receipts or fax confirmations. And really, as a practical matter, I think you should give at least 90 days to pay if they mailed you an EOB that promises X payment.
12) Change of Beneficiary – The policyholder may name a beneficiary in policies that provide a death benefit. This is obvious, but your beneficiary may be a school, hospital wing, your alma mater or local church, and this benefit will be paid tax free to the beneficiary.
NAIC, the National Association of Insurance Commissioners, has an excellent website for both professionals and consumers alike. One nice feature is that you can go to your state insurance commission and check to see if a given company or agent is licensed to do business in your state. NAIC also offers consumer guides in PDF format at http://www.naic.org/index_consumer.htm
[The author has worked in the insurance field in several roles for a decade, and now chooses to make information available to consumers. Stay tuned for more articles detailing your consumer rights.]