Florida 2-15 Life, Health and Variable Annuity AgentFlorida Laws and Regulations Specific to Health InsuranceMedium
A Florida resident has an individual disability income policy. The policy includes a 'Change of Occupation' provision. If the insured changes to a more hazardous occupation, what action will the insurer likely take upon discovering this change?
- AIncrease the premium and maintain the original benefit.
- BContinue the policy with no changes, as long as premiums are paid.
- CCancel the policy immediately due to increased risk.
- DReduce the benefits to what the premium would have purchased at the more hazardous occupation.
Show answer & explanationAnswer & explanation
Correct answer: D. Reduce the benefits to what the premium would have purchased at the more hazardous occupation.
The 'Change of Occupation' provision in a disability income policy allows the insurer to reduce the benefits if the insured changes to a more hazardous occupation, to reflect the increased risk for the premium paid.
Why the other options are wrong
- A. While premium increase is an option, reducing benefits is more common when the change is discovered after the fact, aligning the risk with the original premium.
- B. Ignoring the change would not be financially sound for the insurer, as the risk has increased without a corresponding premium adjustment or benefit reduction.
- C. Immediate cancellation is generally not allowed under this provision; adjustment of benefits or premiums is the typical course.
Change of Occupation Provision
A provision in health insurance policies, particularly disability income, that allows the insurer to adjust benefits or premiums if the insured changes to a different, usually more or less hazardous, occupation.
- Protects insurer from increased risk without adequate premium
- If more hazardous: benefits reduced or premiums increased
- If less hazardous: benefits maintained, premiums may be reduced (or refund issued)
Memory trick: Job shift, benefit swift.