A health insurance plan is a legally binding contract between two or more parties which promises certain benefits in exchange for certain considerations and is considered to be a unilateral contract because only one party to the contract (the insurer) is required to meet his obligation. Although the policy holder can decide to cease premium payments, while premium payments are made, the insurer must meet his duty under the contract.
Health Insurance Benefits
A health insurance plan can provide just a single benefit or a combination of several benefits including:
- Hospital expenses (both medical and surgical) arising out of sickness or an accident.
- Accidental death or dismemberment.
- Disability arising out of sickness or an accident (This is sometimes referred to as “loss of time” or “loss of income”).
Sickness Vs. Accident
Sickness is defined as a disease or illness which does not arise out of an accident, while an accident is an injury which arises out of an accident. It is important to understand the difference between “sickness” and “accident” because plans often provide separate provisions for each. It is also worth noting that some insurers sell specific accident policies which do not cover sickness.
Just to confuse everybody, the terms “sickness” and “accident” appear frequently in any discussion about health insurance and the terms are often used interchangeably. To confuse matters even more “health insurance” is also often referred to as “medical insurance”.
2 Broad Health Insurance Plan Categories
Against this background we can see that health insurance is designed to provide protection again two forms of economic loss – loss of income and expenses for medical care. This places health insurance plans into two broad categories:
- Disability income plans
- Medical expense plans
Disability income plans (which are also be known as loss of income, loss of time or replacement income plans) pay benefits when the insured is disabled and is no longer able to work and earn a regular income. Payments under such plans may be weekly or monthly depending on the particular plan.
Medical expense plans vary widely in their coverage from minimal cover to very comprehensive packages with coverage for a very wide range of events. Some plans include cover for sickness and accidents, a variety of different hospital expenses and other costs associated with medical care. Such plans include:
- Accident and sickness plans
- Hospital plans
- Basic medical expense plans
- Major medical expense plans
- Comprehensive medical expense plans
Some plans only cover accidents and not sickness and these plans are very specific about what is and what is not an accident and it is vital that we understand the definition of an accident as it is understood by the health insurance industry.
An accident is an event which is both unforeseen and unintended.
It should also be borne in mind that any discussion of accident plans also applies to any type of plan which includes accidental coverage and not just to accident specific plans.
Benefits from accident plans are normally paid for accidental loss of life (or accidental death), accidental dismemberment or the accidental loss of a limb, a loss of income, hospital and surgical expenses and associated medical expenses such as visits to the doctor.
The term “dismemberment” often causes confusion because the definition of dismemberment is laid down by statutes which vary from one state to the next. This is therefore something which you must discuss on an individual basis with your insurance agent or insurance company.
The Accidental Death Benefit
The benefit paid in the event of death can be referred to as either the “accidental death benefit” or the “principal sum” and this benefit should not be confused with the benefit paid under a life insurance plan. Life insurance plans will normally pay a benefit in the event of death regardless of the cause of death (subject to standard exclusions for such things as suicide, act of war etc.), whereas an “accidental death benefit” or “principal sum” payment will only be made in the event of accidental death.
The death benefit will be paid to the plan’s nominated beneficiary and it is the plan holder’s responsibility to name the beneficiary of the plan. Under normal circumstances there is just one beneficiary known as the “primary beneficiary”, but a second or third beneficiary can also be named. This is designed to allow for the death of the primary beneficiary in advance of that of the plan holder.
One final point when considering accidental death plans is that accidental death does not have to be “instant”. In other words it is possible that a plan will pay out a death benefit when the plan holder dies months after an accident, as long as the death is considered to have resulted from the accident. In these cases there are generally time limits applied and these will be clearly stipulated in the terms and conditions of the plan.