DEFINITION of ‘Carryover Provision’
An insurance policy clause that allows the policyholder to shift losses from the end of the policy year to the next policy year or the previous policy year. Carryover provisions are most commonly associated with insurance and reinsurance, though they are also used in flexible spending accounts (FSAs). Carryover provisions limit out-of-pocket expenses for policyholders that file a claim at the end of the policy year.
INVESTOPEDIA EXPLAINS ‘Carryover Provision’
Deductibles are common features of insurance policies. This is the amount of loss that the policyholder is responsible for before the insurance policy coverage takes effect. For example, a health insurance policy may have a $500 deductible that is the responsibility of the policyholder. After that deductible is paid the insurance company will cover remaining losses up to the coverage limit.
In some cases, a policyholder may file a claim at the end of the policy period. The policyholder would be responsible for the deductible, after which the insurer covers the rest of the expenses. If the insured files another claim the following year, the insured would be responsible for paying the deductible again. The carryover provision allows the insured to apply medical expenses occurred during the final months of the current period to the deductible of the upcoming period.
Carryover provisions can be found in medical and health insurance plans, but not always. If a policyholder breaks his leg, for example, the cost of medical care applies to the deductible during the next policy period. For example, if an individual has a $3,000 deductible and incurs $500 worth of medical treatment in December, the $500 is applied to the deductible for the upcoming period. This means that the typical $3000 deductible becomes $2,500. This prevents a situation in which the policyholder pays a deductible in December for one injury, and then has to pay the deductible in January of the following year because of another injury.