Group Life Flashcards
What is Blanket Health Policies?
Blanket health policies are 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 continually 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.
What is Certificate of Insurance?
A certificate of insurance is 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 a master policy. The insureds (typically employees) receive a certificate of insurance instead of a policy.
What is a Contributory Plan?
A contributory plan is 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. The employees must contribute to the cost of the plan.
What is a Conversion Privilege?
The conversion privilege 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 affected at attained age (premiums based on the age attained at the time of conversion) or at original age (premiums based on the age of the insured at the time of original issue). Conversion is a common privilege for term life insurance and all group insurance. The insured does not have to prove insurability (good health) when converting a policy.
What are Credit Policies?
Credit Policies are 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 limit of the creditor’s insurable interest in the insured(s).
What is Franchise Insurance?
Franchise Insurance is a 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. Franchise insurance is generally written for groups too small to qualify for regular group coverage. May be called wholesale insurance when the policy is life insurance.
What is the Master Policy?
The master policy is issued to the employer under a group plan; contains all the insuring clauses defining employee benefits. Individual employees participating in the group plan receive individual certificates that outline highlights of the coverage.
What is a Noncontributory Plan?
A noncontributory plan is an employee benefit plan under which the employer bears the full cost of the employees’ benefits; in most states, the plan must cover 100% of eligible employees. The employees do not contribute to the cost of the plan.
What is Persistency?
As it pertains to insurance, persistency is the percentage of policies an insurer has in force after a specified period of time. Persistency is negatively impacted by policies replaced by other insurers, canceled by the policy owner, or laps due to nonpayment. Companies with higher persistency are more stable and profitable than those with lower persistency. Generally speaking, companies aim for 80% persistency after three-years and 60% after five years. Meaning, 60% of the policies written five years ago should still be active.
What is Group Life Insurance?
Group life insurance is a type of term life insurance that covers a group of people under a single policy contract. Typically, it is offered by a large association or entity for its workers. Depending on the type of policy, the workers may contribute to the cost of the policy through weekly or monthly paycheck deductions (premium payments). Group life insurance policies contain many features and conditions that are different from those covered in an individual life insurance policy.
How does Group Life Insurance differ from Individual Life Insurance?
Group life insurance differs from individual life insurance contracts in several ways. One of the differences between the two is that group insurance is most often comprised of annual renewable term life insurance. In contrast, individual insurance contracts may be term life or whole life insurance. Underwriting is handled differently, and varying types of policy provisions appear in a group life policy. Group life insurance coverage is characterized by the underwriting of numerous individuals rather than one. Group term life insurance, like all insurance contracts previously mentioned, is a two-party contract between the policyholder and the insurer (just like an individual contract). However, unlike an individual insurance policy, the insured is almost never the policy owner of group life insurance. The employer generally plays the role of the policy owner.
The employer or group providing the group life coverage pays all or a portion of the premium and is the policyholder. The employer or plan sponsor receives the master policy. In contrast, the covered employees or plan participants receive a certificate of coverage or a booklet that describes the benefits, the coverage provided, and how long the insurance coverage will last. The covered employee or plan participant is also known as the certificate holder. Types of groups that are eligible include employees of a single employer, credit groups, labor unions, and multiple employer groups.
What is the Employer’s Responsibilities?
The employer is responsible for the selection of group coverages, record keeping, and employee enrollment. The employer is not permitted to discriminate, especially when the plan is noncontributory.
Group Insurance VS Individual Insurance
- Underwriting
a. In an individual policy, the insured must prove they are insurable.
b. In group insurance, the group must meet various criteria, but the insureds are not individually underwritten.
2. Policy ownership
a. Traditionally with individual insurance, the insured is also the policy owner. While there may be instances of third-party ownership, this is not common.
b. With group insurance, the insured is rarely the policy owner. There is one master policy owned by the employer or plan sponsor.
i. Employers or plan sponsors receive the master policy, and as such, are the policy owner or contract holder.
ii. Employees or plan participants receive the certificates of insurance (not individual policies), and as such, are certificate holders.
3. Policy type
a. Group life insurance is always considered temporary insurance. Typically, annually, renewable term is used, which provides a fixed amount of coverage throughout the contract.
b. Individual insurance can be any of the previously discussed temporary or permanent insurance products.
c. Whenever a person converts their group insurance to individual insurance, they are always converting temporary protection to permanent protection.
4. Cost
a. Individual insurance policies are considerably more expensive for the insurer to issue (underwrite, commission, billing, maintenance, etc.). As we’ve learned, these administrative costs are passed on to the customer, making individual policies more expensive to purchase.
b. Group insurance policies are substantially less expensive for the insurer to underwrite, issue, and maintain. As such, group insurance is much cheaper for the customer to purchase.
c. In some cases, the employer or sponsor may pay a substantial portion or all of the premium cost for the group insurance policy. With individual insurance, the customer (policy owner) is always responsible for all of the premium cost.
Note: Since the individual does not own or control the policy, they are issued a certificate of insurance (sometimes called certificate of coverage and benefits) to serve as evidence of an employee’s coverage. The actual policy, which is called the master policy, is issued to the employer, who becomes the policyholder.
What is a Noncontributory Plan?
The employer pays the entire cost of the plan. The insurance company requires that 100% of all eligible employees participate. The most significant benefit of a noncontributory insurance plan is that it helps the insurer avoid adverse selection.
With a noncontributory group insurance plan, the employees or plan participants do NOT contribute to the premium payments.
What is a Contributory Plan?
An employee group insurance plan in which employees share the cost. The insurance company requires that at least 75% of all eligible employees participate.
With a contributory group insurance plan, the employees or plan participants contribute to the premium payments.