Texas General Lines — Life, Accident, Health and HMOHealth InsuranceHard
An insured individual has a disability income policy with a 'Change of Occupation' provision. If the insured changes to a more hazardous occupation without notifying the insurer and then becomes disabled, what is the MOST likely outcome regarding their disability benefits?
- ABenefits will be reduced to what the premium would have purchased at the more hazardous occupation.
- BThe policy will be immediately canceled, and no benefits will be paid.
- CBenefits will be paid in full as the policy was already in force.
- DBenefits will be increased due to the higher risk.
Show answer & explanationAnswer & explanation
Correct answer: A. Benefits will be reduced to what the premium would have purchased at the more hazardous occupation.
The 'Change of Occupation' provision allows the insurer to adjust benefits if the insured changes to a more hazardous occupation without notification. The insurer will pay the amount of benefits that the premium paid would have purchased at the new, higher-risk occupation. This is to avoid adverse selection.
Why the other options are wrong
- B. Immediate cancellation is usually not the first step; reduction of benefits is more common to reflect the actual risk assumed for the premium paid.
- C. This is incorrect; the 'Change of Occupation' provision specifically addresses this scenario to protect the insurer.
- D. Benefits are never increased for a higher risk without a corresponding premium adjustment.
Change of Occupation Provision (Disability Income)
A mandatory health insurance provision that allows the insurer to adjust disability benefits if the insured changes to a more or less hazardous occupation, often retroactively if not notified.
- Protects insurer against uncompensated risk.
- Benefits reduced if occupation becomes more hazardous.
- Benefits may be increased if occupation becomes less hazardous.
Memory trick: Job Change, Benefit Rearrange, Fairness for the Exchange.