Massachusetts Health & Accident Insurance Practice Exam

How does the "No Gain No Loss" principle function in replaced policies?

1. The new policy pays all past claims

2. The replacing policy pays for ongoing claims of the replaced policy

3. The insured loses previous benefits

4. The replaced policy remains active

The correct answer is: The replacing policy pays for ongoing claims of the replaced policy

The "No Gain No Loss" principle in the context of replaced insurance policies ensures that when a new policy is obtained to replace an existing one, the insured does not suffer a disadvantage in terms of ongoing claims. This principle functions by stipulating that the new policy will take over the payment responsibilities for any claims that were initiated under the replaced policy. In practical terms, this means that if the replaced policy was covering ongoing medical treatments or claims at the time of the replacement, the new policy will continue to cover those claims without interruption. This safeguards the insured from a potential loss of coverage or benefits that would have otherwise impacted their ongoing claims. Hence, the new policy essentially mirrors the benefits of the old policy to maintain continuity for the insured, ensuring that they are not adversely affected by the transition between policies. The other choices reflect misinterpretations of how the principle functions; they either suggest that past claims will be paid by the new policy or imply that the insured loses previous benefits or that the replaced policy remains active, none of which align with the protective intention of the "No Gain No Loss" principle.