Chapter 17 - Group Life Insurance

Question 1

Group Life Insurance - 99% of the time it is a term insurance for the employees. Called a fringe benefit.

Answer 1

Typically these term plans are annually renewable, increasing premium with the age of the employee.

If the group pays 100% of the premium, 100% of the employees are covered. To be eligible for tax advantages at least 70% of the employees must be on the plan or at least 85% of those participating are not key employees.

With group life policies there is NO free look provision.

The information in the application from the insured is considered representation, not a warranty.

A misstatement of age or gender the premiums or benefits will be adjusted, not the policy canceled.

If the employee waives coverage, proof of insurability will be required if they later want to sign up.

Question 2

Conversion Privilege (when you quit, get fired or loose the benefit)

Answer 2

Required in group life policies, its a clause that guarantees that an insured (or family member) who loses Group Life insurance may covert to an individual policy without evidence of insurability.

• the face value of the new policy may not be more than the face value of the group policy.
• If I take a new job that provides a smaller amount of group life the insured may choose to convert only the difference in coverage.
• once group life insurance ends, the application for the new policy and payment of the first premium usually must occur within 31 days of the termination. If the organizing entity fails to notify the insured of the right to convert, the conversion time is 60 days.
• if the insured dies during the conversion period the insurers must pay the death benefit just as if the policy was still in place.
• the premium for the new policy will be based on the standard individual rate for the insured’s attained age at the time of conversion.
• The insurer usually will require the insured to convert the term policy to a whole life policy.
• a conversion does not happy where the employer simply switches from one insurance carrier to another.
• The converted policy is an individual policy, not a continuation of group coverage, and the premium for the new policy is paid by the individual too the insurance company.

Question 3

Taxes and group insurance

Answer 3

The employer may deduct the cost of the premiums as a business expense, regardless of the face value.

The employee need not report the premiums paid as income as long as the face value of the policy is less than 50K.

Employers will avid extra book keeping and only offer 50K policies.

The death benefit is paid to the beneficiary tax free.