Group Life Insurance Flashcards
Noncontributory
is 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
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.
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 in lieu of a policy.
A 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.
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 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 insurance. The insured does not have to prove insurability (good health) when converting a policy.
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. Generally written for groups too small to qualify for regular group coverage. May be called wholesale insurance when the policy is lifeinsurance.
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 only amount the creditor has insurable interest in.
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 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.
FEATURES OF GROUP INSURANCE
the individual does not have to provide evidence of insurability- group underwriting is involved
- are not issued as individual policies- master contracts are issued instead
- low cost due to lower administrative, operational, and selling expenses associated with group plans
- flow of insureds: entering and exiting under the policy as they join and leave the group
- typically issued as level term insurance, which provides a fixed amount of coverage throughout the term of the contract
Note: Since the individual does not own or control the policy, they are issued a certificate of insurance to prove they have coverage. The actual policy, which is called the master policy, is issued to the employer.
- Employees are called - certificate holders
- Employers are called - contract holders
ELIGIBLE GROUPS
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 purchase insurance. There is no minimum # of members required for group life 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)
- Employee must be full time and actively working
- If contributory, employees must approve of automatic payroll deduction
- New employee probationary period is usually 1 to 6 months
- The employee has 31 days during the enrollment period to sign up, otherwise they may need to provide evidence of insurability
Classification of Risk
Insurers require that a minimum number of group members/employees participate in a group insurance plan in order to minimize adverse selection. Adverse selection means that the people most likely to need life insurance will purchase life insurance in greater numbers than those in good health.
After all necessary information is collected on an applicant, the underwriter will classify the applicant based on the degree of risk assumed.
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
Lower risks tend to have lower premiums. If an applicant is too risky, the insurer will decline coverage.
Group Term Life:
Life insurance is normally offered as a guaranteed annual renewable term policy. The policy is issued for one year and may be renewed annually without evidence of insurability at the discretion of the policyowner.
Group Whole Life
Though not as common, group whole life offers permanent protection for insured members under the group.
