|
|
|
« Back to Articles |
Next Article » |
Article 11 of 15 in Sample Disability Insurance Policy and Provisions Review |
Disability insurance premiums and reinstatement |
 |
Payment of Premiums
Premiums are the life blood of the insurance policy – the sine qua non (without that, nothing). If the premiums are not paid on time, no benefits will be available. Without them, the policy does not exist. As important as you consider the payment of benefits, your premium payments are equally important to the insurance company and, ultimately, to you. Premiums must not just be paid; they must be paid on time. The insurance company sets the rules for premium payments in the policy. If the insured does not comply with these rules, he risks losing coverage – possibly at the critical time of claim.
PREMIUMS AND REINSTATEMENT
PAYMENT OF PREMIUM
This policy is effective and its first premium is due on the Policy Date. After that, premiums are due as shown on the Data Page. Premiums may be paid on or before their due dates. The Owner may change the frequency of premium payments with our approval. We will not allow a change while you are Disabled. All premiums are to be sent as provided in the premium notices. |
COMMENT:
The payment of the initial premium, along with the insurance application, initiates the contract. Because the very existence of the insurance contract depends on the initial and subsequent premiums, debates about premium payment have resulted in much litigation over the years. Actions by agents of the insurance company sometimes result in coverage even though no premium has been paid. For example, if an agent has assured the policy owner that coverage is in force and that the initial premium will be collected later, courts have ruled that the insurance company, through its agent, waived its right to have the initial premium paid in a timely manner.
GRACE PERIOD
Except for the first premium, we allow a grace period of 31 days after the premium due date to pay the premium due. The policy will stay in force during this time. If a premium is not paid by the end of the grace period, it is in default and the policy terminates.
UNPAID PREMIUM
Before paying benefits, we will deduct any premium due but not yet paid.
REFUND AFTER DEATH
We will refund any premium paid for coverage beyond your death. We must be given written proof, satisfactory to us, about your death.
TERMINATION
This policy ends on the first of:
- Your Age 65 Policy Anniversary unless renewed subject to the Renewal After Age 65 provision;
- The Owner’s written request to terminate it; or
- The grace period ending as described in the Grace Period provision.
|
COMMENT:
Renewal premiums are those paid after the initial premium. At the time of application the insured usually chooses the frequency with which renewal premiums will be paid. Renewal payment options usually are monthly, quarterly, semi-annually and annually.
Occasionally a policy will lapse because the renewal premium has not been paid and the grace period has expired. A grace period is a specified period of time, usually 30 or 31 days (in this sample policy, it is 31 days) after the due date, during which the premium may be paid without penalty and coverage remains in force. If a renewal premium is not paid by the end of the grace period, the policy lapses, which means coverage ends and the company is no longer bound by the insurance contract. An insurance company may waive its right to have premiums paid on the due date. If an insurance company does extend the premium due date beyond the end of the grace period, no new grace period follows the extension.
Reinstatement provision after lapse due to nonpayment
If your policy lapses because you did not pay the premium by the end of the grace period, you may be able to reinstate your policy. The Reinstatement provision explains how to do that.
| PREMIUMS AND REINSTATEMENT REINSTATEMENT
With our approval, this policy may be reinstated after termination. Payment of past due premiums is required. We may also require an application and evidence you are insurable under our underwriting rules then in effect.
When an application is required, reinstatement takes effect on the date we approve the application. If we do not decline reinstatement in writing within 45 days, the policy will be reinstated on the 45th day after date of the conditional receipt we gave you in exchange for your payment of all premiums due.
A reinstated policy only covers a Disability from:
- A Sickness which first manifests itself more than 10 days after the date reinstatement takes effect; or
- An Injury which occurs after the date reinstatement takes effect.
A reinstated policy is subject to any provisions or changes attached to the reinstated policy. |
COMMENT:
A policy lapses when the required premium has not been paid by the end of the grace period. However, most insurance polices, including this sample policy, offer a right of reinstatement. In other words, even after giving you 31 days of grace during which you did not pay your premium, the insurance company is willing to consider reinstating your policy under very specific conditions. Most states require insurance companies to include a reinstatement provision in their policies. This right of reinstatement can be valuable if, for example, the lapsed policy contained more favorable provisions than the policy owner could obtain in a new policy.
Though reinstatement is often available in disability income insurance policies, the reinstated policy usually only covers disability resulting from injuries that occur after the reinstatement date and illnesses that begin (manifest themselves) a certain period of time after the reinstatement date to protect against anti-selection (buying insurance when you know you have claim). In this sample, a reinstated policy covers disability resulting from a sickness which first manifests itself more than 10 days after the date reinstatement takes effect.
As a condition for reinstatement, the insurance company may require satisfactory evidence of insurability. If only a short time has passed after the grace period expires, most insurance companies will not require evidence of insurability. When evidence is required, however, not only the health but also the habits, occupation, and finances of the insured may be considered in determining insurability, just as they are considered when a person first applies for coverage. The underwriters look at the health of the insured as of the date of the reinstatement application and disregard any change in health after that date.
Although it might appear that an insurance company bears the same risk with a reinstated policy as it did with the same policy before reinstatement, the potential for anti-selection must be considered. Those with the greatest health risks are likely to try to reinstate policies after they have lapsed. If insurance companies were to allow reinstatement without requiring evidence of insurability, the claims experience on the reinstated policies would be poorer than the assessed risk when those policies originally were issued.
Military service: Different insurance companies have different ways of dealing with the risks associated with full-time military duty. Some policies simply exclude coverage for any disability resulting from injury or illness that occur as a result of war or act of war or from being a member of the military on active duty. This approach requires the insured to continue paying the premium while serving in the military. The sample policy takes a different approach.
PREMIUMS AND REINSTATEMENT
SUSPENSION DURING MILITARY SERVICE
This policy will be suspended while you are on full-time active duty in the military service of any nation or international authority. Suspension will be effective as of the date active duty starts. Active duty does not include training by reservists that lasts 90 days or less. We will refund the pro rata portion of any premium paid for a period beyond the date of suspension. The suspended policy may be restored without proof of insurability if:
- The active duty ends within 5 years from the date of suspension; and
- The Owner applies in writing and premiums are paid within 90 days following the date active duty ends.
Your coverage will start again as of the date we receive the written request and premiums to restore the policy, but not before the date active duty ends. Only a Disability from a Sickness which first manifests itself or an injury which first occurs after the policy is restored is covered. Once restored, all rights under the policy will be the same as before the policy was suspended. Premiums will be at the same rate as they would have been had the policy remained in force. |
COMMENT:
Members of the armed services can be deployed on short notice, leaving little time to deal with personal and business affairs. Insurance coverage, in particular, can be affected when someone moves out of state or spends extended time away from home on active duty. Before you purchase any insurance policy, ask the agent how the company will handle issues related to the deployment of military policyholders. Guidelines vary, but by shopping around, you may find an insurance company that takes into account the specialized needs of service members.
Some policies, like the above sample, may allow you to suspend coverage while you are deployed. Some companies suspend coverage while an insured is on active duty, not only because of the potential risk incurred that was not considered during underwriting, but also because of the difficulties of paying premiums and keeping a policy in force when away from home.
This policy can be restored without proof of insurability if active duty ends within 5 years after coverage was suspended and the policy owner applies in writing to restore the policy and premiums are paid within 90 days after the date active duty ends. Coverage under the policy will resume on the date the insurance company receives the written request and the necessary premium, but not before the date active duty ends. Rights and premium rates under the policy will be the same as they would have been if there had been no suspension of coverage. But there is one difference: The restored policy will cover only disability that results from sickness which first manifests itself or injury which first occurs after the date the policy is restored. |
« Back to Articles |
Next Article » |
|
|
|
|
|
|
|
|
|
Disability Insurance Center
Auto | Homeowners/Renters | Health | Life | Insurance Agents & Quotes | Site Map | Privacy Policy | Media | About Us | Contact Us