Life & Health Insurance Exam (National Portion)Policy Provisions, Options, and RidersMedium
A health insurance policy includes a 'Change of Occupation' provision. If an insured changes to a more hazardous occupation, what action will the insurer likely take regarding the policy's benefits or premiums?
- ACancel the policy immediately due to increased risk.
- BIncrease the benefits for the same premium.
- CContinue the policy with no changes, as occupation is not a factor.
- DReduce the benefits to match the original premium.
Show answer & explanationAnswer & explanation
Correct answer: D. Reduce the benefits to match the original premium.
The Change of Occupation provision allows the insurer to adjust benefits or premiums if the insured changes to a more or less hazardous occupation. For a more hazardous occupation, the insurer will typically reduce the policy's benefits to what the original premium would have purchased at the higher risk classification.
Why the other options are wrong
- A. Cancellation is usually not the first step unless the new occupation is uninsurable or falls outside policy terms. Adjustment is more common.
- B. This would increase the insurer's exposure without additional premium, which is contrary to underwriting principles.
- C. Occupation is a significant underwriting factor, especially for disability and health insurance, so changes are always a factor.
Change of Occupation Provision
A provision in health insurance policies that allows the insurer to adjust policy benefits or premiums if the insured changes to a different occupation, particularly one with a higher or lower degree of hazard.
- Protects insurer from increased risk without adequate premium.
- If more hazardous: benefits reduced for same premium.
- If less hazardous: premiums reduced or benefits increased.
- Insured has a duty to inform the insurer of changes.
Memory trick: OCCUPATION: Odds Change, Coverage Changes.