Group Life Insurance Flashcards
Noncontributory Life Insurance
A form of group life insurance.
The employer pays the entire premium. In most states, the plan must insure 100% of eligible employees.
Helps the insurer avoid adverse selection
Contributory Life Insurance
The employee “contributes” a portion of the premium and the employer pays the rest. Generally, 75% of the eligible employees must be insured in most states.
Certificate of Insurance
A document issued by an insurance company/broker that’s 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 insured (typically employees) receive a certificate of insurance in lieu of a policy.
a standard COI lists the policyholder’s name, policy effective date, the type of coverage, policy limits, and other important details of the policy.
A Master Policy
A master policy is an insurance contract issued to a policyholder (typically an employer or business owner) who will provide insurance coverage to other individuals (typically their employees).
Employers who hold a master policy can issue certificates of insurance to those who qualify.
A master policy contains all the insuring clauses defining employee benefits.
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 (premium based on the age attained at time of conversion) or at original age (premium based on age at time of original issue).
Conversion is a common privilege from term life insurance and all group insurance. The insured doesn’t have to prove insurability (good health) when converting a policy.
Franchise Insurance
A life or health insurance plan for covering groups with individual policies uniform in provisions, although perhaps different in benefit.
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 life insurance.
Credit Policies
Designed to help the insured pay off a loan if they are disabled due to an accident or sickness or die.
If the insured becomes disabled, the policy provides for monthly benefit payments equal to the monthly loan payment due.
If the insured dies, the policy will pay a lump sum to the creditor to pay off the loan.
Credit policies typically can’t exceed the loan amount as it’s the amount the creditor has insurable interest in.
Blanket Health Policies
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.
No certificates of coverage are issued as compared to group insurance.
it is most often an accident-only policy issued to cover a group of individuals engaged in a specific activity. For example, school districts, colleges and universities, and sports teams can purchase Blanket Health coverage to provide health benefits to athletes and cheerleaders.
Most importantly, a Blanket Health insurance policy typically has limits on the types of covered tests, procedures, and services. There may also be a maximum covered benefit – ranging from $5,000 to $50,000 of eligible expenses – for treatment of individuals under this type of policy.
Group Life Insurance
Cover a number of people undre one contract
An employer providing for employees
Usually written as an annually renewable term policy
Usually cheaper than purchasing an insurance policy individually.
Group Insurance Eligibility of Group Members (Employees)
Employees must be full time and actively working
If contributory, employees must approve of automatic payroll deduction
New employee probationary period is usually 1-6 months
The employee has 31 days during the enrollment period to sign up. Otherwise, they may need to provide evidence of insurability.
Minimum # of Group Members Requirement
To avoid adverse selection
Adverse Selection - # of people who need life insurance > # of people in good health
Tax Treatment - Non Discrimination Requirement of Group Insurance (Eligibility for Tax Benefits)
Must benefit at least 70% of all employees, at least 85% of all participating employees must not be key employees.
Employers can selectively offer life insurance only to key employees, but they cannot deduct the employee premiums from their federal taxes, unless they meet the non-discrimination requirements.
Group Insurance Premium Tax Deduction
Employer can deduct the premium it pays as a business expense. The IRS requires the cost of employer-provided group life insurance > $50,000 to be taxable as income to the employee.
Proceeds from a group life policy are tax-free if taken in a lump-sum.
Proceeds taken in installments will be subject to taxes on the interest portion of the installments.
Employeee Benefit Schedule
Most employers will establish benefit schedules as follows:
- Earnings
- Employment position
- Flat benefit
Conversion to Individual Policy & Conversion Period
If a member’s coverage is terminated, he and his dependents may convert their group coverage to individual life coverage, without having to show proof of insurability.
An individual must apply for individual coverage within 31 days after the date of group coverage termination. An individual is covered under the group policy during the conversion period.
