What Is an Adjustment Provision?

An adjustment provision is a type of allowance that is found in the text of an insurance policy that makes it possible to change one or more terms in the plan by means of a simple amendment rather than requiring the issue of a new contract. This type of provision is normally utilized to make minor changes, such as increasing or decreasing the premium that the policyholder pays to keep the coverage in force, or to make some sort of change in the range of benefits that are provided to the policyholder. Typically, the adjustment provision will include some guidelines for what type of changes may be allowed and possibly even some detail in regard to the issuer’s responsibility in notifying the policyholder of the change in a timely manner.

One of the benefits of an adjustment provision is that it eliminates the necessity of issuing a new contract each time a change is made by the insurance company issuing the plan. Instead, an amendment can be added to the plan and a copy of the amendment, complete with the date of activation, forwarded to the policyholder. For example, rather than issuing a new policy when the premium is increased, the policyholder will receive written notice detailing when that increase will go into effect. The same approach may be used to allow for changes to the scope of coverage, such as adding a deductible to the medication rider in a health insurance plan, or even changing the amount of an existing deductible.

The inclusion of an adjustment provision can also allow for policyholders to make some changes when and as needed. This is particularly true with plans that are written as adjustable policies. For example, an adjustable life insurance policy would allow the policyholder the option of increasing or decreasing the scope of benefits as the life circumstances of that client undergo some sort of change. This means that if the policyholder should marry or divorce, or have children after the issue date of the original plan, making adjustments to increase the coverage or to include or remove beneficiaries can be managed without the need to redo the entire policy.

With an adjustment provision, the policyholder may have to meet some sort of criteria, especially when the goal is to increase the scope of coverage. With life insurance plan that contains this type of provision, the client may be required to undergo another physical examination by a physician selected by the provider before a request to increase the total amount of the life insurance will be approved. Assuming that no health issues are discovered that would increase the risk to the provider, there is a good chance that the application for increased benefits will be approved.