Health Insurance Policy Types

A health insurance policy is a legally binding contract between two or more parties and promises certain performance in exchange for considerations (premiums). A health insurance policy is considered a unilateral contract. That is because only one party (the insurance company) is required to fulfil their obligation. While a policy owner (you) may decide to terminate premium payments, as long as the payments are paid as required, the insuring company must meet their obligations under the contract.

A health insurance policy may provide a single benefit or any combinations of many benefits:

Hospital, medical and surgical expenses resulting from sickness or an accident
Accidental death or dismemberment payments

Disability payments resulting from an accident or illness (also referred to as “loss of income” or “loss of time”)

The difference is important because policies have different provisions that apply to accidents or illness. Some companies sell separate accident policies that do not include sickness.

The terms accident and sickness are often used interchangeably in any discussion of health insurance, and sometimes abbreviated as A&H and A&S. Health insurance is also referred to as medical insurance and sometimes travel insurance which will cover you away from your home state or country..

Health insurance is designed to protect again two types of loss. Loss of income and expenses for medical care which places them in either of two policy categories:

Disability income policies can also be referred to as loss of income, loss of time or replacement income. This type of policy will pay benefits to an insured who is disabled and can no longer work to earn a regular income. Payments can be weekly or monthly depending on the policy terms.

Medical expense policies comprise a broad range of coverage from very limited to comprehensive packages with multiple coverage. Some include accidents and illnesses, various hospital expenses and other costs pertaining to medical care such as:

Accident and sickness policies
Hospital policies
Basic medical expense policies
Major medical expense policies
Comprehensive medical expense policies
Travel Health Insurance Policies (will be dealt with in a separate article)

Any of these policies might cover various combinations of the above and may be paid in a lump sum.

Some policies cover only accidents and not illness. As you might imagine, policies like this are very specific about what is considered an accident. It is very important to understand the definition of an accident on each insurance policy. An accident is an event that is unforeseen and unintended. Often policies have a number of exclusions and you must read the policy carefully in ensure that you understand the coverage. Often there are exclusions if the accident occured during an activity considered dangerous by the policy or if as a result of an illigal activity such as operating a vehicle while impaired by drugs or alcohol.

Bear in mind that any discussion of this type of policy also applies to any type of policy that includes accidental coverage and not just accident specific policies.

Accident benefits are most commonly paid for accidental loss of life (also called accidental death), accidental loss of limb or sight (dismemberment), loss of time and/or income, hospital expenses, surgical expenses, and medical expenses such as doctor visits.

Each state has that define dismemberment and they can vary from state. You need to discuss this with your insurance agent to determine what really constitutes dismemberment in your state.

The Accidental Death Benefit can also be referred to as “principal sum.” This type of coverage should not be confused with life insurance. The two are totally different.

Life insurance policies will generally pay regardless of the cause of death.

An accidental benefit is paid ONLY if the death is accidental as opposed to a death by natural causes or illness. And then only if none of the exclusions in the policy apply. Some policies exclude contributory actions, for instance, they might limit the amount payable for death in a vehicle accident if the deceased was not wearing a seat belt.

The beneficiary is the person who receives the death benefit.
The policy owner appoints and names the beneficiaries.

Usually there is a primary beneficiary however a second or even a third beneficiary may be named.

The primary beneficiary is the always the first person in line to receive the benefit in the event of the death of the policy holder. They can also name a second beneficiary who would receive the benefit in the event the primary beneficiary dies before the insured. Some policies can include a third beneficiary who would be in line after the first two.

There is much more to be learned about accidental death policies, but we would like to mention one important element before we move on. An accidental death may not be instant. Sometimes people may die as a result of an accidental injury months after the accident occurrence. Read your policy carefully because most stipulate that the accidental death benefit will only be paid if death occurs within certain period after the accident.

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Health Insurance Policy Types