Accident and health (A&H) insurance pays benefits when a person is injured or becomes sick. This guide builds the vocabulary you need before moving on to disability, medical, dental, and senior products: the two kinds of loss A&H covers, how policies define accident and sickness, AD&D and the other limited-benefit products, the ways people obtain coverage, health underwriting, common exclusions, and the producer's duties from application to delivery.

The two kinds of loss

A&H insurance protects against two financial consequences of injury or illness:

• Loss of income – earnings lost because the insured can't work, covered by disability income insurance.
• Cost of care – hospital, physician, surgical, prescription, and other bills, covered by medical expense insurance.

Benefits are paid in one of two ways:

• Reimbursement (indemnity) – pays actual covered expenses, up to plan limits, so the insured is restored but not enriched.
• Fixed-amount (valued) – pays a stated sum regardless of the actual bill. A hospital indemnity policy that pays a set amount per day in the hospital is a valued contract, despite its name.

Accident vs. sickness

• Accident (injury) – a sudden, unexpected, external event.
• Sickness – an illness or disease, typically defined as one that first manifests while the policy is in force.

Many policies treat them differently. A probationary period excludes sickness that begins shortly after issue (accidents are covered immediately); NAIC Model #171 limits it to 30 days for most policies. Some disability policies use a shorter or waived elimination period for accidents.

Accidental means vs. accidental results

• Accidental means – the stricter test: both the cause and the result must be unexpected and unintended.
• Accidental results (accidental bodily injury) – only the result must be unexpected. A back injury suffered while intentionally lifting a box is covered.

The accidental results standard is broader and more favorable to the insured.

Accidental death and dismemberment (AD&D)

AD&D pays stated amounts for accidental death or the loss of limbs or sight:

• Principal sum – the full amount, paid for accidental death.
• Capital sum – a stated fraction of the principal sum paid for a less severe dismemberment, such as the loss of one hand, foot, or eye.

NAIC Model #171 requires AD&D benefits to be payable if the death or dismemberment occurs within 90 days of the accident; a policy may use a longer period.

Limited-benefit policies

A limited policy covers only specified perils, diseases, or benefits, or pays limited amounts. Under Model #171, limited policies must prominently state that they provide limited benefits and are not comprehensive coverage.

Voluntary (worksite) benefits such as accident, hospital indemnity, and critical illness coverage are usually employee-paid through payroll deduction.

Where coverage comes from

• Individual – bought by a person directly from an insurer, usually through a producer. Disability income, limited-benefit, and LTC policies are individually underwritten. Individual major medical coverage under the ACA is guaranteed issue during enrollment periods and can't be rated on health.
• Group – issued to an employer, union, or association as a master policy; members receive certificates. The group is underwritten as a whole. An association qualifies if it was formed for a purpose other than buying insurance.
• Blanket – covers a changing class of people who are not individually named, such as students, sports teams, or passengers of a common carrier.
• Franchise (wholesale) – separate individual policies issued to members of a group too small for true group coverage.
• Government – Medicare (65+, certain disabled people, ESRD), Medicaid (needs-based, federal-state), CHIP (uninsured children above Medicaid income limits), Social Security disability, and workers' compensation (job-related injury and disease, without regard to fault).

Health underwriting

The producer is the field underwriter: gathering accurate information, having the applicant sign to attest to the answers and authorize their use, and having the applicant initial any corrections (never using correction fluid).

Underwriting sources:

• The application, medical records, and exams.
• An Attending Physician Statement (APS) from the applicant's own doctor.
• The MIB, a member exchange of coded information from prior applications. MIB codes prompt further investigation and may not be the sole basis for an adverse decision.
• Inspection (investigative consumer) reports on habits, finances, and lifestyle, subject to the FCRA.

For disability income, occupation and earned income are the most important factors after health.

Outcomes:

• Preferred – lower-than-average risk; lower premium.
• Standard – average risk.
• Substandard – issued with a higher premium, an impairment (exclusion) rider that removes coverage for a named condition, or reduced benefits (for example, a longer elimination or shorter benefit period).
• Declined – too great a risk at any price.

Federal law limits health underwriting: GINA bars health insurers from using genetic information for eligibility or premiums (it doesn't apply to life, disability, or LTC), and ACA-compliant major medical coverage can't exclude or rate for pre-existing conditions.

Common exclusions

Health policies commonly exclude or limit losses from:

• Intentionally self-inflicted injury.
• War or acts of war.
• Elective cosmetic surgery (unless due to accident or medical necessity).
• Conditions covered by workers' compensation (to prevent duplicate recovery).
• Care in a government facility (such as a VA hospital) when the insured isn't required to pay.
• Commission of, or attempt to commit, a felony.

From application to delivery

• Conditional receipt – when the initial premium is collected with the application, coverage is effective on the later of the application or exam date if the insurer would have issued the policy as applied for.
• If no premium was collected, coverage generally begins at delivery, once the premium is paid and the producer obtains a statement of good health.
• At delivery, the producer reviews the policy, riders, and exclusions with the insured.
• An outline of coverage summarizes benefits, exclusions, and renewal terms in a standard format.
• Free look – the insured may return the policy within the stated period for a full premium refund, and the policy is treated as void.

Replacement

Replacing a health policy can create new probationary, elimination, or pre-existing condition periods and a new contestable period. The insured should keep the old policy until the new one is issued and in force.

Producer errors and omissions

E&O insurance protects producers against claims that their professional mistakes, such as failing to submit an application or giving incorrect advice, harmed a client.

Common exam traps

• Principal sum = full benefit for accidental death; capital sum = a fraction for a single limb or eye.
• Accidental means (cause and result unexpected) is stricter than accidental results (result only).
• Probationary periods apply to sickness at the start of coverage, not to accidents.
• Hospital indemnity is a valued (fixed-amount) contract, not an indemnity reimbursement contract.
• Blanket covers unnamed people; franchise issues individual policies to a small group.
• MIB information alone can't be the reason for a decline.
• Medicare is age/disability based; Medicaid is needs based.
• Don't drop old coverage until the replacement is in force.

Quick recap

• A&H covers lost income (disability) and the cost of care (medical), by reimbursement or fixed amounts.
• Accident vs. sickness; accidental means vs. accidental results.
• AD&D pays the principal sum for death and capital sums for dismemberment.
• Limited policies (accident-only, specified disease, critical illness, hospital indemnity, travel) must say they are limited.
• Coverage comes from individual, group, blanket, franchise, and government sources.
• Underwriting classifies applicants as preferred, standard, substandard (rated, impairment rider), or declined, within GINA and ACA limits.