No matter what the type of policy, you’ll find the following sections in an insurance contract that limit the amount of benefits that are paid:
• “Declarations” Page: This is descriptive material about a particular person’s insurance policy—e.g., name of the insured, beneficiary (if any), type and amount of coverage, policy deductibles and/or co-insurance, period (term) of coverage, premium amount and due date(s), policy number, and name of insurance agent.
• Exclusions: This is a description of risks that are not covered by a policy. Common examples of policy exclusions are nuclear war, earthquakes and floods (unless you have a special policy), a personal car used as a taxi, and business liability losses (e.g., a client comes to your home and falls on the sidewalk) on a personal insurance policy.
• Endorsements and Riders: These are additional clauses to an insurance contract that add coverage in exchange for a higher premium. Common examples are theft coverage for property left in a vehicle, business use of a car, and a “scheduled property rider” to cover the total value of property such as jewelry and coins.
Insurance policies also contain the following features that specify coverage limits:
• Benefit Coordination Clauses: This feature is designed to prevent people from collecting from two insurance policies for the same expense, especially in the case of two-worker families with employer-provided health coverage. Generally, a worker can claim from a spouse’s policy only the amount not covered by his or her employer’s policy. In other words, the total claim cannot exceed 100% of the cost.
• Deductible: This is a dollar figure, usually a flat dollar amount (e.g., $200 or $500) that an insured person must pay out of pocket (from their own pocket) before the policy reimburses them for the remainder of a loss. For example, with a $500 deductible and a $2,000 loss, the insured would pay $500, and the insurance company would pay the remaining $1,500.
• Elimination Period: With some types of policies (e.g., disability and long-term care), the policy states a certain number of days (e.g., 30, 60, or 90), starting from the beginning of an insurable event (e.g., injuries from an accident), before benefits are paid.
• Co-Payment: Co-payments are commonly used with prescription drug coverage and office visits to doctors in a health maintenance organization (HMO) plan. They are the amount (e.g., $5 per office visit or $10 per prescription) that an insured person must pay out of pocket. The remainder of the cost is covered by the medical plan.
• Co-Insurance: This is the amount (usually stated as a percentage) of a loss that an insured person is expected to pay out of pocket. For example, some health insurance policies pay 80% of approved charges, and the insured is responsible for the balance. Generally, there is a limit (e.g., $2,000) on the amount you must co-pay per year. This limit is called a “stop-loss limit.”
• Policy Limit (also known as "lifetime maximum"): This is the highest dollar amount that a policy will pay. For example, an auto insurance policy with a $300,000 liability limit will not pay benefits greater than $300,000. Some health insurance policies only pay benefits up to $250,000, sometimes for an entire family. A much better policy limit is a maximum of $1,000,000—or no policy upper limit—for each family member.
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