Group Insurance Market Flashcards
Group life
Group life insures a group of people under a single contract. State and federal laws restrict the insurer’s underwriting criteria for group policies. The purpose of group life is to underwrite the combined risk of a group of individuals as a single policy.
Natural group
Group must be a natural group formed for the reason other than to purchase insurance at a lower rate
who receives the Master policy
Employer is issued the master policy
What do the employees receive as proof of insurance
Employees are issued cert. of insurance
is evidence of insurability required for group insurance
Evidence of insurability is not normally required
When can an employee be eligible for benefits?
Group plans must also have a grace period of, typically, 31 days and is usually written as Annual Renewable Term.
Types of group plan sponsors
The employer may be a partnership, a corporation, or a sole proprietorship.
There are two legal employer-employee groups fitting one of the following definitions:
Contributory – Employees must contribute to the premium payments and at least 75% of all eligible employees must participate.
Noncontributory – Employer pays the entire premium with a mandatory 100% of the eligible employees participating. The percentage participation requirements are used to reduce adverse selection.
An employee must be a full time employee in the immediate group, a subsidiary firm, or any active partner to be eligible for coverage.
Group Underwriting
The underwriter’s greatest concern when underwriting a group plan is adverse selection. To help protect against preexisting conditions and immediate claims, group plans can have a probationary period set by the group sponsor. This is a waiting period between when an individual is hired and when they become eligible to enroll in the group plan.
The cost of the plan is determined by the average age of the group, size, industrial classification (nature of the work involved), experience rating (the group’s claims), and the turnover history of personnel. These factors are more important than the actual overall health of the group.
Group Conversion
There is a conversion period of 31 days in which the employee may, upon termination of eligibility and without evidence of insurability, convert their group life insurance benefit to an individual permanent policy.
The conversion period is also a grace period. In the event a terminated or ineligible employee dies during the conversion period, whether they were going to elect individual coverage or not, a death claim will be paid by the group policy, less the premium due for the benefit.
Franchise (Wholesale)
This type of group insurance is unique–a Master Policy is not issued since underwriting is on an individual basis, and individual policies are issued, meaning evidence of insurability may be required.
The employer may be the premium payor or the premium costs may be shared by the employer and employee.
The grace period is typically 31 days, and the employer is responsible for the plan administration, making it less expensive than individual policies.
The insurer requires a minimum number of participants before underwriting and the group must be together for reasons other than to purchase insurance.
