Health & Disability Insurance Clauses & Provisions

Instructor: Deborah Schell

Deborah teaches college Accounting and has a master's degree in Educational Technology.

Health and disability policies contain certain conditions that apply to a policyholder. In this lesson, you will learn about clauses and provisions in health and disability insurance policies.

What Are Health and Disability Insurance Clauses and Provisions?

Let's meet Zoe who is looking to purchase health and disability insurance. She has spoken with her insurance agent who tried to explain the clauses and provisions that apply, but Zoe is still confused about what they all mean and how they will apply to her. Let's see if we can help Zoe with this problem.

Health and disability insurance policies contain certain conditions that the insurance company must fulfill for the policyholder as well as some conditions to which the policyholder must adhere. Some of the more common conditions in health and disability clauses include:

  • An insuring clause
  • The free look provision
  • A consideration clause
  • A probationary period
  • An elimination or waiting period

Let's examine each of these provisions in more detail.

Insuring Clause

An insuring clause in a health or disability policy specifies exactly what the insurance company is liable for (or the risk that it assumes) and how much it will pay in benefits. It also explains what type of loss the insurance company will cover under the policy.

Let's assume that Zoe has a disability policy in which she will receive 70% of her current salary if she becomes disabled. The insuring clause ensures that the insurance company will provide benefits to her (in this case, 70% of her current salary) as it is stated in the insurance policy.

Free Look Provision

If Zoe decides to purchase health or disability insurance, she has a period of time, known as a free look period to decide if she wants to keep the policy or not. During the free look period, she can ask her insurance company additional questions about her policy. If Zoe decides to cancel her policy during the free look period (which is usually at least 10 days), then the insurance company must provide her with a full refund. The insurance company will charge Zoe surrender charges if she chooses to cancel her policy after the free look period expires.

Consideration Clause

A consideration clause in a health or disability policy specifies how much the policy's premium or cost of the policy is and when the policyholder must pay premiums. For example, the consideration clause in Zoe's disability policy could state that she must pay $50 each month with premiums due on the 15th of each month.

Probationary Period

A probationary period clause in a disability policy defines the period of time that the insurance company will not pay a policyholder for an illness from which he/she may suffer. For example, let's assume that Zoe has a pre-existing condition or a condition that existed before she took out her disability insurance policy. The probationary period for her policy might state that she is unable to collect benefits for 15 to 30 days after her policy becomes active. This clause helps the insurance company ensure that it is not paying claims for conditions that existed before the policyholder took out the policy and may not have disclosed to the insurance company at the time of application. If Zoe were to become disabled after the probationary period, she would be able to collect benefits.

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