Ch5. Accident, Health & Liability Insurance — A&H and Liability Lines

Accident & Health (A&H) Insurance Overview

A&H Insurance:
A hybrid line sitting between life insurance and P&C insurance.
Covers accident, sickness, and long-term care risks.

Fixed-Benefit Features (life insurance side):
Pays a flat dollar amount upon death or disability.

Expense-Reimbursement Features (P&C side):
Reimburses actual medical expenses incurred.

In the US, A&H products are sold by both:
Life/health insurers AND property/casualty insurers.
Regulated at the state level; the NAIC publishes model acts.

Accident Insurance

Coverage Trigger:
An accidental bodily injury caused by
a sudden, unintended, external event.

Three Required Elements:
Sudden: occurs rapidly and unexpectedly
Unintended / accidental: not deliberate
External: caused by an outside force or event

Covered Benefits:
Accidental death, dismemberment (AD&D),
hospital confinement, surgery, outpatient visits.

Accident vs. Sickness:
Accident: external cause (slip and fall, car crash)
Sickness: internal, disease origin (cancer, diabetes)
Car accident injury = accident; cancer = sickness

Health Insurance and Individual Medical Expense Coverage

Individual Major Medical Insurance (post-ACA):
Covers hospitalization, outpatient care, prescription drugs.
ACA (Affordable Care Act) requires:
  10 essential health benefits
  No lifetime or annual dollar maximums (EHB)
  Guaranteed issue / community rating in individual markets

Cost-Sharing Structure:
Premium: monthly payment to maintain coverage
Deductible: amount you pay first before insurer pays
Coinsurance: your share after deductible (e.g., 20%)
Copay: flat dollar per visit (e.g., $30/office visit)
Out-of-pocket maximum: your annual cap on cost-sharing

Critical Illness / Cancer Insurance:
Pays a lump sum on diagnosis of a covered condition.
Supplements (does not replace) major medical coverage.

Dental Insurance:
Covers preventive, basic, and major dental services;
often a separate policy from medical.

Liability Insurance

Liability Insurance:
Pays damages and legal defense costs when the insured
is legally obligated to pay for injury or property damage
caused to a third party.

Mandatory or Required Liability Lines:
Auto liability (BI/PD) — required in nearly all states
Professional liability (E&O / malpractice) — required in many
  licensed professions (medicine, law, accounting)
General liability — often required by commercial leases
  and government contracts

Commercial General Liability (CGL):
Covers premises & operations, products liability,
completed operations, and personal & advertising injury.

Subrogation:
After paying a liability claim, the insurer may pursue
recovery from the responsible third party.

Key Concept Cards

A&H = Accident, Sickness, and Long-Term Care ★★★★★ : Sold by both life/health and P&C insurers; regulated by states. Memory hook: A&H = Accident + Health + LTC

Accident = External, Sudden, Unintended ★★★★★ : All three elements must be present for accident coverage to apply. Memory hook: Accident = 3 E’s — External, sUdden, unintEndEd

Liability Insurance = Covers Third-Party Claims ★★★★☆ : Pays when the insured is legally responsible for another’s injury or loss. Memory hook: Liability = third-party obligation

Practice Quiz

Q. How has the ACA changed the individual health insurance market?

Before the ACA (pre-2014), insurers could deny coverage or charge higher premiums based on pre-existing conditions, and annual/lifetime dollar limits were common. The ACA introduced: guaranteed issue (insurers must sell to anyone during open enrollment); community rating (premiums vary only by age, geography, tobacco use, and plan tier — not health status); 10 essential health benefit (EHB) requirements; elimination of lifetime dollar maximums; and the federal marketplace (Healthcare.gov) for subsidized coverage. The cost-sharing structure (deductible → coinsurance → out-of-pocket max) remains, but the maximum is capped. Key tension: balancing access/affordability with insurer solvency and premium stability.

Q. Why is the “external cause” requirement important in accident insurance?

The external cause requirement distinguishes accidents from sickness. Sickness (internal origin — a disease process) is not covered under accident-only policies. Without this distinction, accident insurers would face claims for all illness-related events. Contested cases arise when both internal and external causes contribute — for example, a person collapses from a heart attack and hits their head. Courts ask: was the proximate cause external or internal? Self-inflicted injury is external in origin but fails the “unintended” requirement — therefore not covered. This boundary is a frequent source of insurer-insured disputes.