Optional Provisions

In addition to the 12 mandatory provisions, insurers may include 11 optional provisions in health insurance policies. Unlike mandatory provisions that protect the insured, optional provisions generally protect the insurer.

Overview of Optional Provisions

Key Difference	Mandatory	Optional
Purpose	Protect insured	Protect insurer
Required	Yes, by law	No, insurer's choice
Modification	Must be at least as favorable	Standard wording used

Key Principle: Optional provisions place more responsibility on the insured and give the insurer rights to adjust coverage or benefits under certain circumstances.

The 11 Optional Provisions

1. Change of Occupation

This provision allows the insurer to adjust benefits if the insured changes to a more hazardous occupation:

Situation	Effect
More hazardous occupation	Benefits reduced to amount premium would have purchased
Less hazardous occupation	Premiums reduced; excess returned

Example:

Accountant (low risk) becomes construction worker (high risk)
Premium paid: $500/year
Premium for construction worker: $750/year
Benefit adjustment: 500/750 = 67% of original benefits

2. Misstatement of Age

If the insured's age was misstated on the application:

Situation	Adjustment
Age understated	Benefits reduced proportionally
Age overstated	Excess premiums returned

Calculation:

Adjusted Benefit = Original Benefit × (Premium Paid / Premium for Correct Age)

Note: This provision adjusts benefits rather than voiding the policy, which protects the insured.

3. Other Insurance with the Same Insurer

If the insured has multiple policies with the same insurer providing similar benefits:

Provision	Effect
Limits excess coverage	Total benefits limited to reasonable amount
Premium return	Excess premiums returned
Prevents over-insurance	Insured cannot profit from multiple policies

4. Insurance with Other Insurers (Expense-Incurred)

For policies reimbursing actual expenses when the insured has similar coverage with other insurers:

Situation	Effect
Undisclosed other insurance	Benefits reduced proportionally
Excess premium	Returned to insured
Prevents duplication	Limits total reimbursement to actual expenses

5. Insurance with Other Insurers (Other Benefits)

For policies providing fixed benefits (not expense reimbursement):

Situation	Effect
Other insurance not disclosed	May reduce benefits
Prevents over-insurance	Limits potential for profit

6. Relation of Earnings to Insurance

Applies to disability income policies when benefits exceed the insured's actual earnings:

Situation	Effect
Benefits exceed earnings	Benefits reduced to actual monthly earnings
Exception	Minimum benefit of $200/month (or policy amount if less)
Premium adjustment	Proportional premium returned

Purpose: Prevents moral hazard by ensuring disability benefits don't exceed what the insured would earn by working.

7. Unpaid Premium

Allows the insurer to deduct unpaid premiums from claims:

Application	Details
Claim during grace period	Unpaid premium deducted from benefit
Outstanding loans	May also be deducted

8. Cancellation

Allows the insurer to cancel the policy:

Requirement	Details
Written notice	Required
Notice period	At least 5 days before cancellation
Premium refund	Pro-rata refund of unearned premium
Insured's right	May cancel at any time with short-rate refund

9. Conformity with State Statutes

Ensures policy provisions comply with state law:

Situation	Effect
Provision conflicts with law	Law prevails
Automatic amendment	Policy reads to conform with law

10. Illegal Occupation

Limits coverage for losses occurring while engaged in illegal activity:

Application	Details
Coverage denied	If loss occurs during illegal occupation
Felony involvement	Loss related to committing a felony

11. Intoxicants and Narcotics

Limits coverage for losses caused by substance use:

Substance	Effect
Alcohol intoxication	No coverage for losses while intoxicated
Narcotic use	No coverage unless prescribed by physician
Illegal drugs	No coverage for drug-related losses