Lesson 1

Question 1

1.1.a Describe CPP/QPP death benefits

Answer 1

CPP provides a low maximum lump sum death benefit.

CPP pays monthly survivor benefits based on the age of the spouse/dependent children.

Question 2

1.1.b Describe WC death benefits

Answer 2

WC pays a lump sum for covered deaths which vary by jurisdiction. As well as a pension to the surviving spouse. Some jurisdictions provide payments to dependent children as well.

In general death benefits from WC are higher than CPP benefits

Question 3

1.1.c Explain why government-sponsored death benefits don’t impact the design or amounts paid in group plans?

Answer 3

Because CPP/QPP and WC death benefits are relatively modest the fact that these programs are available doesn’t affect the design or amounts paid in group plans

Question 4

2.1 Describe the types of death benefits commonly provided in group insurance plans (5)

Answer 4

Basic life insurance is the most prevalent benefit available.

Other types of death benefits include:

• optional life
• dependent life
• AD&D
• retiree life

Question 5

2.2.a Describe term insurance

Answer 5

Provides death benefits for a limited amount of time.

Paid only if the insured dies during the term of coverage.

There is no benefit if the insured doesn’t die during the covered period

Question 6

2.2.b Describe whole life insurance

Answer 6

Will pay out when the insured dies. Level premiums are generally payable based on the age of the individual when joining the plan.

Generally premiums are payable for the member’s life but may also just be payable for a specific period (eg for 20 years to the age of 65)

Cash and other forfeiture values are provided usually after the policy has been in force for two years.

Question 7

2.2.c Which is more expensive Group Whole Life or Term Life

Answer 7

Whole Life

Question 8

2.3 Outline advantages of providing basic life insurance from a plan sponsor’s perspective

Answer 8

Offering this element of financial security can enhance plan member morale and productivity as well as the competitiveness of the plan sponsor’s benefit plan.

It also helps maintain positive public and plan sponsor/member relations

Question 9

2.4 Outline the advantages of group term life insurance from a plan member’s perspective (6)

Answer 9

1) It adds a layer of low cost protection to personal savings
2) Death benefit payments aren’t taxable to the beneficiary
3) It allows plan members to obtain low cost coverage for spouses and dependent children in optional plans
4) It may reduce anxiety about the consequences of premature death
5) Terminated plan members may be able to convert their group insurance to term insurance without providing proof of insurability
6) Coverage can be provided to those who might be otherwise uninsurable or subject to substandard ratings

Question 10

2.5 Outline the disadvantages of group term life insurance compared with individual whole life (4)

Answer 10

1) Relies upon the sponsor to continue the plan (business failure can leave members without coverage)
2) Not portable, less than 1% of members use conversion privilege when changing employers
3) It provides life insurance protection only. Some members may benefit from other features (savings or cash-value)
4) Unless optional and dependent life plans are offered standard schedules of insurance may not meet an individual’s needs

Question 11

3.1.a Describe the conditions that must be met by eligible employees in single employer group contracts before coverage commences in group insurance plans

Answer 11

Generally only active permanent employees are eligible for basic life insurance

Usually only eligible if not absent from work due to sickness, injury or any other reason on the day they are meant to begin coverage.

For an absent employee coverage begins when they are due to return to work

Question 12

3.1.a Describe the conditional that must be met by eligible employees in multi employer group contracts before coverage commences in group insurance plans

Answer 12

Members of a MEP don’t have to be actively at work when they begin coverage. This is due to irregular work schedules.

In MEPs eligibility provisions are typically based on hours worked or dollar contributions to the trust fund made by the employer on behalf of the employee

Question 13

3.2 Explain how group size impacts participation rates

Answer 13

Minimum participation rates vary by insurer. Group size is a consideration when insurers set participation requirements.

Question 14

3.3 Explain how the amount of basic life insurance coverage is determined for a group life insurance plan member

Answer 14

The amount of life insurance coverage a plan member is eligible for varies based on the benefit formula set by the plan sponsor

Members are assigned to various classes

A benefit schedule can be based on a plan members earnings, a flat amount, or some combination thereof

Question 15

3.4 How does human rights legislation impact determination of life insurance coverage in group life insurance plans

Answer 15

A schedule of benefits must comply with human rights legislation dealing with anti discrimination statuses.

For example a member may be described as with or without dependents rather than married or single

Question 16

3.5 Outline insurer requirements when a group life insurance plan member moves from one class to another (2)

Answer 16

The insurer must be informed of the change, typically within one month

If the change comes with increased benefit entitlements then the member may have to provide evidence of insurability

Question 17

3.6 Explain how the nonevidence maximum (NEM) is calculated

Answer 17

Based on a formula usually unique to each insurer

The formula is based on group size, amount of premium, average amount of insurance per individual, and the nature of the risk or type of industry.

Some insurers determine the average amount of insurance per individual by excluding insurance on those who have significantly higher risk than others (ie company president)

Question 18

3.7.a What is the OM

Answer 18

The Overall Maximum is combined amount of insurance up to and in excess of the NEM. Maximum insurance the insurer will issue to any individual

Question 19

3.7.b Explain how the Overall Maximum (OM) is calculated (4 factors)

Answer 19

The OM is calculated according to a formula based on:

• group size,
• average amount of insurance per plan member,
• amount of premium and
• reasonableness of the schedule of insurance

Question 20

3.8.a Define the retention limit

Answer 20

This limit is applicable to the combined amounts of basic and optional life as well as AD&D coverage.

Question 21

3.8.b Explain the significance of the retention limit

Answer 21

Not a factor in determining the amount of term life insurance issued to individual group members it is considered by the insurer when deciding whether to accept the benefit schedule

Question 22

3.9 List 4 situation in which a member is required to provide evidence of insurability for life insurance

Answer 22

Evidence is required if a member:

1) elects optional life insurance
2) Applies for life insurance and LTD benefits that exceed the NEM
3) Is considered a late applicant (applies more than 31 days after original eligibility)
4) Refuses coverage at the time of original eligibility and later wants to join the plan.

Question 23

3.10 Outline participation rates generally required by insurers for basic life insurance in group life insurance plans

Answer 23

In noncontributory plans insurers generally require a 100% participation rate unless there are evidence of insurability requirements

In contributory plans insurers generally require 75 % participation rates. If participation is below that there may be evidence of insurability requirements.

In very large plans lower participation may be allowed without evidence

Question 24

3.11 Identify 4 situations on which eligible group members and dependents of a noncontributory (compulsory) plan are automatically enrolled in the plan

Answer 24

Automatic enrollment occurs when:

a) The effective date of the plan
b) The eligible individual’s DOH
c) the eligible individual’s date of completion of a waiting period
d) for smaller groups on receipt of satisfactory evidence of insurability

Question 25

3.12.a Describe what reduction provisions are

Answer 25

A reduction provision may reduce life insurance benefits to members who are past the normal retirement age

Question 26

3.12.b Provide three examples of reduction provisions

Answer 26

1) Reducing benefits by a set percentage at age 65
2) reducing benefits gradually over a set number of years or until a set minimum benefit is reached
3) Limiting benefits to a flat dollar amount

Question 27

3.13 Explain the impact of the entry of younger group members on a growing organization’s basic life insurance premium rates

Answer 27

New younger members entering balances out older existing members and helps stabilize the average age. This helps form an underlying basis for lower premium rates typical of group contracts as compared with individual rates

Question 28

4.1 List 4 typical characteristics of optional life insurance coverage

Answer 28

1) Individuals must be enrolled in basic coverage in order to be eligible for optional coverage
2) Optional coverage can be added as a rider or as a separate contact
3) Typically limited to members but may be extended to dependent spouses and on rare occasions to children
4) Typically requires evidence of insurability, usually short form

Question 29

4.2 compare optional life insurance coverage with individual life insurance

Answer 29

Optional coverage is like individual life insurance in that members must submit evidence of insurability.

Rates for optional life tend to be lower than the rates for individual life.

Coverage remains in force only as long as the group plan remains in force and the insured individual continues to be covered by the group policyholder

Question 30

4.3 Explain why underwriting requirements for optional life insurance are more restrictive than for basic life

Answer 30

Optional life insurance is something that can be subject to adverse selection

Question 31

4.4 Explain the rationale for providing an open enrollment period for a new optional life insurance plan

Answer 31

1) May be an incentive for eligible group members to help achieve a higher participation rate
2) during this period (typically 31 days) evidence of insurability requirements are waived.
3) Most insurers stipulate a NEM
4) Evidence of insurability requirements may be waived if there is a high level of participation from the start

Question 32

5.1 List two definitions for dependent in group life insurance

Answer 32

1) A member’s spouse who has been living with the plan member for 12 consecutive months
2) Unmarried children including step and adopted in a specified age range who are dependent on the member for financial support

Question 33

5.2 Explain how adverse selection is minimized in a group life insurance plan

Answer 33

There are restrictions on coverage selection.

If an insured group member selects dependent coverage all dependents are automatically covered.

A plan member is not usually permitted to elect life insurance coverage on the lives of specific individual dependents.

However some dependent life insurance group contracts allow the election of spouse only or children only coverage

Question 34

5.3 Identify types of premium rate structures used for group dependent life insurance plans

Answer 34

As the benefit amount is low so are premium rates and the structure is usually simple

A single flat rate that doesn’t consider the number of dependents or differentiate between spouses and children is usually used

This is based on the assumed average family size and age of members.

There may be a varied rate based on age for older plan members. The varied rate may be for spouse only or family coverage

Question 35

6.1 List 3 approaches plan sponsors use to determine the amount of life insurance coverage they provide to retirees

Answer 35

1) continuing coverage indefinitely but with the benefit amount reduced to a flat dollar amount or by a set percentage (usually 50%)
2) continuing to extend a fixed benefit amount after reductions are made over a set period
3) continuing to extend group coverage but with the benefit amount reduced over a specific period of time until it reaches zero