12.3 Other Standard Provisions and Clauses

The following section outlines commonly recognized standard provisions that may be included in both individual and group insurance contracts. Learners should be aware that the specific terminology and application of these provisions can vary depending on state laws and regulatory requirements.

Right to Examine (Free Look)

A provision that gives the insured a designated period after receiving the policy to review its terms and conditions. During this review period—typically 10 to 30 days—the insured may return the policy for a full refund if it does not meet their needs or expectations. When applicable, additional state-specific requirements and details are discussed in the state law chapter.

Insuring Clause

The clause identifies the essential elements of the insurance contract, including the parties covered under the policy, the insurer providing coverage, the amount of insurance, the policy period, and the specific perils or losses covered. This provision defines the scope of protection provided. Premium amounts and rate calculations are not included in the Insuring Clause.

Consideration Clause

The Consideration Clause explains the exchange of value that makes the insurance contract legally binding. It outlines the premium amount, payment schedule, and any statements made in the application that affect premium determination. In this exchange, the insured’s consideration is the payment of premiums, while the insurer’s consideration is the promise to provide benefits according to the terms of the contract.

Owner’s Rights (Ownership Provision)

This establishes that the policyowner holds all contractual rights under the policy. Unless the insured is also the policyowner, the insured does not automatically have these rights. The policyowner may name or change revocable beneficiaries, assign the policy, and make all decisions related to the policy. The policyowner is also responsible for ensuring that premium payments are made.

Pre-existing Condition Provision

This provision addresses how a policy treats medical conditions that existed before coverage begins. A pre-existing condition is typically defined as any illness, injury, or condition for which the applicant received—or reasonably should have sought—medical advice, diagnosis, care, or treatment during a specified “look-back” period prior to the policy’s effective date. Coverage for such conditions may be limited, excluded, or subject to a waiting period, depending on the terms outlined in the policy.

Probationary Period

This provision establishes a defined waiting period during which coverage for pre-existing conditions is not yet in effect. Its purpose is to protect the insurer from claims arising from illnesses that occur shortly after the policy is issued. During the probationary period, losses resulting from sickness are not covered; however, losses caused by accidental injuries are not considered pre-existing and are typically covered immediately, without any waiting period.

Elimination Period

This provision refers to the waiting period in a disability income policy that must be satisfied after a covered loss occurs before benefits become payable. It functions similarly to a time-based deductible by excluding coverage for short-term disabilities that do not extend beyond the specified period. The policyowner selects the length of the elimination period at the time of purchase, and this choice directly impacts the premium: longer elimination periods generally result in lower premium costs, while shorter periods increase the cost of coverage.

Waiver of Premium

This provision allows the insurer to waive (suspend) premium payments if the insured becomes totally disabled and meets the policy’s eligibility requirements. To qualify, the insured must remain disabled for a specified waiting period, commonly 90 days to 6 months. During this waiting period, premiums must continue to be paid.

Once the insured satisfies the qualification period, the waiver is applied retroactively to the onset of the disability, and any premiums paid during the waiting period are refunded. Premiums remain waived for as long as the insured continues to meet the policy’s definition of disability. When the insured recovers, premium payments resume at the same amount and frequency as before the disability.

First Dollar Coverage

This provision states that coverage begins immediately with the first dollar of a covered expense, without requiring the insured to satisfy a deductible or pay out-of-pocket costs. Under this arrangement, the insurer assumes responsibility for covered losses from the outset, subject to the terms and limits of the policy.

Coordination of Benefits

This provision ensures that when an insured is covered by more than one policy, the benefits are coordinated so that total payments do not exceed the amount of the actual loss. It establishes the order in which policies pay (primary and secondary coverage) and prevents duplication of benefits. For example, if a disability occurs on the job, workers’ compensation typically serves as the primary payor, while other sources—such as Social Security disability benefits and private disability insurance—coordinate as secondary coverage.

Eligible Expense

An eligible expense is a cost incurred by, or on behalf of, an insured individual for services or supplies that meet all of the following criteria:

• Prescribed or provided by a licensed physician
• Medically necessary for the diagnosis or treatment of an illness or injury
• Not excluded under the terms of the policy
• Incurred while the policy is active and in force

Only expenses that satisfy all of these conditions are considered eligible for reimbursement under the policy.

Military Suspension Provision

This provision is intended to protect individuals serving in the armed forces, including active duty and reserve members. It allows an individual policy to be temporarily suspended—along with premium payments—during periods of active military service. Upon completion of service, the insured is permitted to reinstate coverage without being subject to new waiting periods or additional eligibility requirements.

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Quiz

1. Which provision allows a policyholder to return a policy for a full refund within a specified time period?

A. Consideration Clause

B. Right to Examine (Free Look)

C. Insuring Clause

D. Elimination Period

Correct Answer: B

Rationale: The Right to Examine (Free Look) provision gives the insured a set period (usually 10–30 days) to review and return the policy for a full refund if unsatisfied.

2. What is the primary purpose of the Consideration Clause in an insurance contract?

A. To define covered perils

B. To outline the exchange of value between insurer and insured

C. To establish waiting periods for benefits

D. To coordinate multiple insurance policies

Correct Answer: B

Rationale: The Consideration Clause explains the exchange of value—premium payments from the insured in return for the insurer’s promise to provide benefits.

3. Which provision prevents an insured from receiving more than the total loss when covered by multiple policies?

A. First Dollar Coverage

B. Eligible Expense

C. Coordination of Benefits

D. Waiver of Premium

Correct Answer: C

Rationale: Coordination of Benefits ensures multiple policies work together so total payments do not exceed the actual loss.

4. What is the function of the Elimination Period in a disability income policy?

A. It waives premiums immediately after disability

B. It provides coverage from the first dollar

C. It acts as a waiting period before benefits begin

D. It excludes pre-existing conditions permanently

Correct Answer: C

Rationale: The Elimination Period is a waiting period after a disability occurs before benefits are payable, similar to a time-based deductible.

5. Which statement best describes First Dollar Coverage?

A. The insured must meet a deductible before benefits begin

B. Coverage begins immediately without out-of-pocket costs

C. Benefits are reduced based on other insurance policies

D. Only partial expenses are covered initially

Correct Answer: B

Rationale: First Dollar Coverage means the insurer pays covered expenses immediately without requiring a deductible or initial out-of-pocket payment.