Ch. 6 - Group Life Insurance Flashcards
Noncontributory
an employee benefit plan under which the employer bears the full cost of the employees’ benefits; in most states, the plan must insure 100% of eligible employees.
Contributory
a group insurance plan issued to an employer under which both the employer and employees contribute to the cost of the plan. Generally, 75% of the eligible employees must be insured in most states.
Certificate of Insurance
a document issued by an insurance company/broker that is used to verify the existence of insurance coverage under specific conditions granted to listed individuals. With group insurance, the group (typically employer) is the policy owner and maintains the master policy. The insureds (typically employees) receive a certificate of insurance in lieu of a policy.
Master policy
allows a policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue). Conversion is a common privilege for term life insurance and all group life insurance. The insured does not have to prove insurability (good health) when converting a policy.
Franchise Insurance
life or health insurance plan for covering groups of persons with individual policies uniform in provisions, although perhaps different in benefits. Solicitation usually takes place in an employer’s business with the employer’s consent. Generally written for groups too small to qualify for regular group coverage. May be called wholesale insurance when the policy is life insurance
Credit Policies
designed to help the insured pay off a loan in the event they are disabled due to an accident or sickness or in the event they die. If the insured becomes disabled, the policy provides for monthly benefit payments equal to the monthly loan payments due. If the insured dies, the policy will pay a lump sum to the creditor to pay off the loan. Credit policies typically cannot exceed the amount of the loan as that is the only amount the creditor has insurable interest in.
Blanket Health Policies
issued to cover a group who may be exposed to the same risks, but the composition of the group (the individuals within the group) are constantly changing. A blanket health plan may be issued to an airline or a bus company to cover its passengers or to a school to cover its students. No certificates of coverage are issued in a blanket health plan, as compared to group insurance.
The basic principle of group insurance is that…
it provides insurance coverage for a number of people under a single master contractor master policy. Because a group policy insures a group of people, it is the group- not each individual - that must meet the underwriting requirements of the insuring company.
features that separate group insurance from individual insurance..
- the individual does not have to provide evidence of insurability
- not issued as individual policies so the individual does not own the contract
- typically issued as level term insurance, which provides a fixed amount of coverage throughout the term of the contract
Employees are called
certificate holders
Employers are called
Contract holders
Group life insurance can be formed by the following as well as other organizations, just as long as they are formed for a reason other than to obtain insurance
Single-employee groups, Multiple-Employee groups, labor unions, trade associations, credit/debit groups, fraternal organizations, trustee groups (established by two or more employers or labor unions)
Eligibility of Group Members (employees)
- Employees must be full time and actively working
- If contributory, employees must approve of automatic payroll deduction
- New employee probationary period is usually 1-6 months
- The employee has 31 days during the enrollment period to sign up. Otherwise, they may need to provide evidence of insurability
The following rating classification system is used to categorize the favorability of a given risk:
- Preferred-low risk-lower premiums
- standard-average risk-no extra ratings or restrictions
- substandard-high risk-rated up-higher premiums
- declined-not insurable-potential of loss to insurance company is too high
Determining Eligibility
Must benefit at least 70% of employees. At least 85% of all participating employees must not be key employees
Premiums for group life insurance
If paid by the employee are not tax-deductible. However, if the employer pays, it can deduct the premiums it pays as a business expense. The IRS requires the cost of employer-provided group life insurance above $50,000 to be taxable as income to the employee. Proceeds from a group life policy are tax-free if taken in a lump-sum. Proceeds taken in installments will be subject to taxes on the interest portion of the installments.
Most employers will establish benefit schedules according to the following:
Earnings, employment position, flat benefit
Conversion to individual policy
if a member’s coverage is terminated, the member and his dependents may convert their group coverage to individual whole life coverage, without having to show proof of insurability
Coverage period
an individual must apply for individual coverage within 31 days after the date of group coverage termination. An individual is covered under the group policy during the conversion period
Group policy termination
if the master policy is terminated, each individual member who has been insured for at least 5 years is permitted to convert to an individual policy, providing coverage up to the face value of the group policy
How group benefits are determined
Earnings, employment position, flat benefit
Franchise Life Insurance
sometimes called wholesale insurance, is a form of group insurance that covers employees of a common employer or member of a common association or society, however, franchise insurance deviates from typical group insurance arrangements because it does not require a master policyholder. Instead, it simply serves as the “sponsor” of the plan and collects premiums from its employees or members and remits them to the insurance company
Group Credit Life Insurance
a type of decreasing term insurance, it is issued by insurance companies to creditors to cover the lives of debtors in the amounts of their respective loans. Typically, it is provided through commercial banks, savings and loan associations, finance companies, credit unions, and retailers.
Blanket Life Insurance
Covers a group of people exposed to a common hazard. Individuals do not need to apply for blanket coverage and insurers do not need to provide each person with a certificate of coverage. Insureds are not specifically named in the policy because coverage is temporary. In fact, individuals may be covered for only a few hours at a time. Members of the group are automatically covered, but only while participating in the specific hazards named in the policy.
