GROUP INSURANCE (Chapter 6) Flashcards
1
Q
REVIEW
What is a family coverage rider?
A
- Rider for policyholders who have a spouse and children.
- They’re sold in units that cover all eligible family members. (Ex. a unit might provide coverage of $5,000 for the spouse and $1,000 for each child.)
2
Q
REVIEW
Define Limited Payment T-100
A
Premiums payable for a specific period of time (10 or 20 years) or to a specific age ( 65 or age100). Policy then becomes “Paid-Up”.
3
Q
REVIEW
What is a Term-100 policy?
A
Term-100
- Provides lifetime coverage with a maturity date at age 100.
- Premiums are no longer payable after age 100.
- DOES NOT have Cash Surrender Value.
4
Q
REVIEW
What are the two mortality costing options for Universal Life Policy?
A
- Yearly Renewable Term (YRT)
- Level Cost of Insurance (LCOI)
5
Q
REVIEW
Why is a Guaranteed Insurability Benefit (GIB) rider useful?
A
- A GIB rider is very useful for those who currently do not have a large insurance need, or who cannot currently afford a larger amount of insurance, but expect they will want to increase their coverage in the future.
- By adding a GIB rider to a term or permanent policy now, they are
guaranteed the right to increase their coverage even if their health declines.
6
Q
REVIEW
Simplify the meaning of Probability of Death
A
Statistical Probability that a person within a certain group will pass away before their next birthday.
7
Q
Chapter 6
What is Group Life Insurance?
A
Coverage that is offered by a plan sponsor to a group of people who have
some form of common association with that sponsor.
8
Q
What constitutes a group?
A
- All employees of a certain employer
- Executives and managers of a certain employer
- Alumni from a specific university
- Members of an occupational association
- Members of a business association
- Members of a retail association
9
Q
Who is the policyholder for Group Insurance?
A
The policyholder of a group life insurance plan is the business or organization.
10
Q
In group insurance the Policyholder is often referred to as…
A
Plan Sponsor
11
Q
TRUE OR FALSE?
A group life insurance plan is governed by a master contract between the plan sponsor and the life insurance company.
A
TRUE
12
Q
TRUE OR FALSE?
The group member is also the policyholder with the master contract.
A
FALSE
The group member is not the policyholder, he does not get a copy of the master contract. However, all of his benefits and rights under the contract will be described in a benefit booklet, which he will receive upon joining the plan.
13
Q
TRUE OR FALSE?
In Québec, the plan member can consult and obtain a copy of the master contract from the plan sponsor.
A
TRUE
14
Q
TRUE OR FALSE?
For employer-sponsored group plans, one additional requirement is that the employee must be actively at work on the day his coverage under the group plan starts.
A
TRUE
15
Q
TRUE OR FALSE?
If enrolment is optional and
the employee decides to enroll in the plan partway through the enrolment period, he doesn’t have to be at work before the coverage begins.
A
FALSE
- If enrolment is optional and
the employee decides to enroll in the plan partway through the enrolment period, he must actually be at work before coverage will commence. - If he is away from work due to illness or vacation, his coverage will not begin until he returns to work.
16
Q
FILL IN THE BLANK
The premiums for group life insurance are based on _____________.
a) The make up of the group
b) The company profits and dividends
c) Plan sponsors
d) The insurance company
A
The premiums for group life insurance are based on the makeup of the group as a whole.
17
Q
TRUE OR FALSE?
The insurance company will usually recalculate the premium every year, to reflect changes in the group’s demographics over time.
A
TRUE
For example, if the group’s average age increases, the premiums per member will likely increase as well to reflect the greater risk of death.
18
Q
TRUE OR FALSE?
Group plans are not contributory, group life insurance plans require the employer to cover 100% of the premiums themselves.
A
FALSE
Most group life insurance are contributory and require the employer to cover at least 50% of the premiums themselves, but some employers choose to pay the full amount.
19
Q
TRUE OR FALSE?
If the group plan is contributory
the employer remits the minimum
premiums from the employee to the insurance company, and then deducts the employees’ contributions directly from their pay.
A
FALSE
If the group plan is contributory
the employer remits the full amount of premiums from the employee to the insurance company, and then deducts the employees’ contributions directly from their pay.
20
Q
What is the tax treatment for the employer in Group Insurance?
A
If an employer pays some or all of the premiums for a group life insurance plan, it can deduct those premiums as a business expense.
21
Q
What are the tax implications for the EMPLOYEE in Group Insurance?
A
- If an employer pays some or all of the premiums for a group life insurance plan, those premiums are considered to be a taxable benefit for the employee.
- Any premiums paid by the employee are not tax deductible to either the employer or the employee.
Regardless of who pays the premiums, any death benefits paid out under a group life insurance plan are not taxable to the employee, his estate or the beneficiary of the policy.
[Ref. 6.1.5.2]
22
Q
TRUE OR FALSE?
Premiums paid under a group life insurance plan are subject to a provincial insurance premium tax, which ranges from 2% to 5% of life insurance premiums.
A
TRUE
- This provincial insurance tax is usually built right into the price quoted by the insurance company.
23
Q
TRUE OR FALSE?
Premiums paid under group life insurance are only subject to provincial insurance premium tax.
A
FALSE
Premiums paid under a group life insurance plan are also subject to provincial RETAIL sales tax in some provinces, as follows;
- 8% in Ontario
- 9% in Québec
- 7% in Manitoba
[Ref. 6.1.5.3]
24
Q
What’s a key difference between group insurance and individual insurance?
A
- With individual life insurance, the policyholder has considerable freedom when deciding on the amount of coverage to purchase.
- Under a group life insurance plan, the coverage is restricted by the terms of the plan.
25
**Simplify** Schedule of benefits
The base level of coverage provided by a group insurance from the master contract.
26
There are **4 Formats** for *Schedule of benefits*, what are they?
- Earnings multiple
- Flat rate
- Length of service
- Combination
27
# Schedule of benefits
**Explain** Earnings Multiple
Schedule of benefit that provide coverage equal to a multiple or fraction of the member’s base salary.
28
# Schedule of benefits
**Explain** Flat Rate
- Under a flat rate schedule, every group member receives the same dollar amount of life insurance coverage, regardless of their position, salary or wage.
- Flat rate benefit schedules are often used by unionized groups that cover employees who earn an hourly wage.
29
# Schedule of Benefits
**Explain** Length of service
Schedule of benefit intended to reward long-serving employees.
30
# *Chapter 6 - Group insurance*
To keep costs reasonable for the group as a whole, the plan’s schedule of benefits may specify reduced coverage for older or retired members.
Depending on the plan, the reduced coverage may be determined as:
- A fixed percentage of pre-retirement coverage;
- A fixed dollar amount;
- A gradual decline each year until the specified minimum is reached.
31
# *Chapter 6 - Group life insurance*
*TRUE OR FALSE*
some group plans **don't** allow
members to purchase additional coverage.
FALSE
In addition to the base coverage that is provided to all group members, some group plans **allow** members to purchase additional coverage.
32
# *Optional additional coverage*
*TRUE OR FALSE?*
The group member of group insurance does not have to provide evidence of insurability when applying for the additional coverage.
FALSE
Usually the group member **will** have to provide evidence of insurability when applying for the **additional coverage**.
33
# Optional additional coverage
The ability to choose and add coverage in group insurance is known as...
Adverse selection, also known as “anti-selection.”
34
# Optional additional coverage
**Explain** *Adverse selection (Anti-Selection)*
Adverse selection refers to the phenomenon
where someone who is at greater risk *(or who perceives himself to be at greater risk)* is more likely to buy insurance to cover that risk, and is more likely to make a claim than the average person within the group.
35
*TRUE OR FALSE?*
Some group plans allow the member to buy additional coverage without providing
evidence of insurability if they do so *within a specified period of time.*
TRUE
36
*TRUE OR FALSE?*
Term coverage on group insurance takes the form of term life insurance. It is usually **not** available in units.
FALSE
Term coverage on group insurance takes the form of term life insurance. It **is** usually available in multiples of fixed units *(e.g., $25,000 per unit).*
37
*TRUE OR FALSE?*
Group Life insurance is **only** available as a term policy for plan sponsors. It is **not** available as a permanent policy.
FALSE
Optional coverage in group insurance may include some type of permanent life insurance, such as whole life. However, permanent life insurance is more commonly an option upon **policy conversion.**
| [Ref. 6.2.4.2]
38
What is a Dependent life coverage for group insurance?
Life insurance coverage on plan member's dependants.
39
*TRUE OR FALSE?*
In order for a plan member to obtain group insurance coverage for their dependents, they must provide proof of insurability at all times.
FALSE
- As long as they place this coverage **within a short time of joining the plan** *(e.g., 60 days)*, they will **not** have to provide proof of insurability for those dependents.
- If a member’s marital status changes, some plans allow the member to place coverage on the dependants(s) without proof of insurability **as long as it is done within a specified period of time**.
40
*TRUE OR FALSE?*
*Adverse-Selection* does **not** apply on dependents life coverage.
FALSE
- Because dependants coverage is optional, the principal of adverse selection applies.
- A member is more likely to take advantage of the dependant coverage if that dependant is a poor insurance risk.
- Premiums for dependant coverage are often higher than premiums on an independent single life policy.
41
# *Chapter 6 - Group life insurance*
The definition of dependant for the purpose of group life insurance may vary with each group plan, what's the *definition* of dependant? Name **a couple** variations.
- The plan member’s **spouse or common-law partner** (includes both opposite-sex and same-sex relationships)
- The plan member’s children, if they depend on the member for financial support and they are between the ages of **14 days**!and an upper limit (often **18, 19 or 21 years of age**).
- Coverage applies to **biological, adopted and step-children.**
- Extended coverage may be available past the specified age as long as the child **continues to attend school full-time, up to a maximum age**
*(usually between **23 to 25** years of age)*
- If the child is disabled and unable to work, coverage may be available indefinitely.
42
# *Chapter 6 - Group life insurance*
What is the typical death benefit amount on dependant coverage for group life insurance?
In the range of **$5,000 to $20,000**
on the **spouse’s life**, with **50%** of this amount on the life of each dependent child
43
**Simplify** the *survivor income benefit* for group insurance
An optional benefit that can be purchased by the plan member.
44
Who are the beneficiaries in the survivor income benefit?
- Plan member’s **surviving spouse or
common-law partner,** until that person reaches age 65, remarries or dies.
- May also be payable to the plan member’s surviving children, until they reach a certain age (e.g., until age 21). This duration may be extended for children who are attending school full-time.
45
# *Chapter 6 - Group life insurance*
What is the **benefit amount** for the survivor income benefit?
- The exact amount will depend on the group plan.
- The survivor income benefit is normally
**expressed as a percentage of the group member’s monthly salary** just prior to death.
- Survivor income benefits may be **subject to a monthly, annual or cumulative cap,** depending on the plan.
46
*How* does the Accidental Death & Dismemberment (AD&D) work in a group life insurance?
- The insurance company will pay an extra benefit, over and above the regular death benefit, if the plan member dies as a result of an accident.
- Under the accidental dismemberment portion of AD&D coverage, the insurance company will pay a lump sum if the plan member loses a specific body part or body function as a result of an accident.
47
Does AD&D require proof of insurability ?
NO
Because AD&D benefits are only **payable as a result of an accident**, evidence of insurability is not required.
48
Can you buy AD&D coverage for your dependants in group insurance?
YES
Some group insurance plans also **allow** the member to buy AD&D coverage for his spouse and/or children. Usually, coverage for the dependants is a **fixed percentage** of the coverage on the plan member himself.
49
What are the *exclusions* of AD&D under a group insurance?
- Self-inflicted injuries;
- War;
- Active service in the armed forces;
- Commission of a crime by the insured;
- Driving while impaired;
- Piloting a non-commercial aircraft
50
A member of a group life insurance plan generally has the right to **convert** some or all of his group life insurance coverage to **individual coverage** with the **same insurance company**, without providing proof of insurability, if...
- He leaves the plan because he retires or changes employers;
- He is no longer a member of the sponsoring organization;
- The plan itself is terminated
51
*TRUE OR FALSE?*
In regards to the *Québec Act Respecting Insurance* if a group life insurance plan member leaves the group **prior to age 65,** he must be given the option of converting **some or all** of his life insurance coverage into the same amount of individual insurance.
TRUE
This also applies to any spousal
or dependant life insurance coverage that existed under the group plan.
52
*FILL IN THE BLANK*
In regards to the *Québec Act Respecting Insurance* The amount of insurance on the participant’s life that is eligible for conversion must be at least ___________ and may not exceed _________.
a) $5,000 and may not exceed $100,000
b) $12,000 and may not exceed $120,000
c) $20,000 and may not exceed $200,000
d) $10,000 and may not exceed $400,000
The amount of insurance on the participant’s life that is eligible for conversion must be at least **$10,000** and may not exceed **$400,000**.
53
*TRUE OR FALSE?*
Provincial Laws for conversion privileges in group & life insurance are governed by Canada Except Québec.
FALSE
While conversion privileges are **not** governed by provincial laws in the Canada, (Excluding Québec) the industry does follow the Canadian Life and Health Insurance Association (CLHIA) guidelines.
54
The Canadian Life and Health Insurance Association guidelines provide **protection upon conversion**, what are they?
- On or before reaching age 65, a plan member should be able to **convert up to $200,000 of the group-life coverage** on his own life to individual insurance without providing proof of insurability;
- At a minimum, he should have the **option of choosing yearly-renewable term, or term-to-age 65**.
- The plan member must apply for the **conversion within 31 days** of the termination of his coverage under the group life insurance plan.
55
*TRUE OR FALSE?*
Group life insurance policies typically include a waiver of premium provision for disabled members.
TRUE
Group life insurance policies typically include a waiver of premium provision, which stipulates that, if the member is disabled, the insurance company will waive the premiums for a specific period of time specified in the contract.
56
**Simplify** Group Creditor insurance
**Group Insurance** for Financial institutions.
57
What Constitutes a group creditor insurance, Who is the policyholder?
Financial institution is the policyholder and borrowers are the plan members.
58
Consumers often have misconceptions about how **group creditor insurance** works,
the *Canadian Life and Health Insurance Association (CLHIA)* has published guidelines to help protect borrowers who purchase group creditor insurance. **name some**.
*These guidelines require the **lender** to
disclose the following to the *borrower* at the time of applying for the creditor insurance*;
- That the insurance **coverage is voluntary**, and is **not** required for approval of the loan;
- That the borrower has at least **20 days after receiving the Certificate of Insurance to cancel the coverage and obtain a full refund**;
- The **amount of the premium** or how it is calculated;
- That the coverage is **subject to acceptance** by the insurer;
- The **insurer’s obligation** to **notify the borrower if coverage is declined**;
- The **terms upon which coverage starts**, if the application is accepted
59
How does the **Death Benefit** *payout* in group creditor insurance?
It's limited to the amount of the debt outstanding. If this is the case, then the death benefit **decreases as the debt is repaid**.
60
Who is the *beneficiary* in group creditor insurance?
The beneficiary of group creditor insurance is **the lending financial institution**
61
How do premiums function in Group Creditor Insurance?
*It depends*;
- Premiums for group creditor insurance are typically **based on the borrower’s age** *(within a range of 5 to 10 years)* and **smoking status**.
- How these rates are applied **depends on the policy and the type of loan** *(Mortgage insurance, for example bases the premium on the original mortgage amount)*.
- The premiums for creditor life insurance on a line of credit, however, tend to be **based on the outstanding loan** at the end of each month, or averaged over the year.
62
Can you have **additional coverage** with Group Creditor Insurance?
YES
*Some group creditor life insurance providers also offer coverage **if the borrower becomes disabled, suffers a critical illness, or even becomes unemployed**.*
63
Say I become disabled, critically ill, or unemployed, how will the group creditor insurance protect me?
- Group creditor disability insurance will **pay the lender a monthly benefit** if the **borrower becomes disabled and is unable to work**.
- With critical illness, **insurance will pay off the outstanding debt** if the **borrower is diagnosed with a covered illness**. The benefit is paid regardless of whether the borrower can work or not.
- For unemployment **insurance will pay the lender a monthly benefit** if the **borrower loses his job through no fault of his own**. These benefits are normally limited to a specific dollar amount or duration.
64
# *Chapter 6 - Group life insurance*
What are the *differences* in **poor health status** for group life insurance & Individual Life insurance?
- People in poor health can get
coverage at affordable rates with group life insurance.
- People in poor health will be denied
coverage, or will have to pay higher
premiums with individual life insurance.
65
# *Chapter 6 - Group life insurance*
What are the *differences* in **control of policy** for group life insurance & Individual Life insurance?
- In group insurance, the employer or plan sponsor owns and controls the policy
- The policyholder owns and controls
the policy for individual life insurance.
66
# *Chapter 6 - Group life insurance*
What are the *differences* in **evidence of insurability** for group life insurance & Individual Life insurance?
- Generally no evidence of insurability
is required during the enrolment
period for group insurance.
- Evidence of insurability is required for individual insurance.
67
What are the *differences* in **guaranteed premiums** for group life insurance & Individual Life insurance?
- With **group insurance**, premiums are only **guaranteed for one year at a time**.
- For **individual Insurance**, the policyholder **can choose yearly-renewal-term coverage, 5-year term, 20-year term**, etc., where **rates are guaranteed for the term**.
68
What are the *differences* in **coverage** for group life insurance & Individual Life insurance?
- Coverage rarely continues past age 65 for group insurance. In addition, **optional coverage is usually limited**.
- For individual life insurance, **you can obtain term coverage to age 75 or 80, or permanent coverage** until death.
69
What are **some** ADVANTAGES for group insurance?
- No evidence of insurability is required.
- Individuals who are in poor health, have a pre-existing condition or who smoke will still be covered, with affordable premiums.
- Some or all of the premiums may be paid by the employer.
- It is convenient for the employee.
- Coverage may be converted to individual coverage without proof of insurability if the policy terminates or the member leaves the plan.
70
What are **some** DISADVANTAGES for group insurance?
- People in very good health will pay the same premiums as the rest of the group.
- The employer or plan sponsor controls the plan and can make changes without consulting the group members.
- The amount of coverage may not be what the plan member needs.
- The premiums for individual coverage upon conversion are not guaranteed and may not be favorable.
- Employer-paid premiums are a taxable benefit.
