Unit 8: Group Life Insurance Flashcards
What is group life insurance?
•provides coverage for many lives using 1 contract
•premiums are less expensive than an individual policy
What is the general eligibility rule to sponsor a group insurance plan?
The group must have been formed for a purpose other than for obtaining group insurance for its members
What are the types of groups eligible for group life insurance?
•employer group plans (sometimes referred to as employee group plans)
•multiple employer trusts (METs)
•labor unions
•association group plans
•group credit life insurance
What are employer group plans?
•sometimes referred to as employee group plans
•a group insurance plan sponsored for employees
What are multiple employer trusts (METs)?
•trust made up of multiple small employers in the same or similar industries
•formed to provide life insurance or other benefits for their employees while gaining tax benefits
What are labor unions?
•2 or more labor unions may join together to provide group insurance for their collective members
•sponsored under a Taft-Hartley Trust
What are association group plans?
A trade, professional, or other type of association may sponsor a group plan for its members
What is group credit life insurance?
•a lender-or creditor-may sponsor a group life insurance plan for its group of debtors
2 features separate it from other plans:
•can be made payable to the sponsoring group
•amount of coverage is limited to each individual insured’s remaining debt balance
What is the master policy vs. certificates of insurance?
•one master policy is issued to the sponsoring group & the applicant is the policyowner
•individual employee or member gets a certificate of insurance as evidence of coverage under the master policy
—>the employee, a certificate holder, has the right to name their beneficiary
What is a contributory employer group plan?
•employee pays part of the premium
•at least 75% of eligible employees must participate
What is a noncontributory employer group plan?
•employer pays the entire premium on behalf of the employees
•100% of eligible employees must participate
Group underwriting
•underwriter focuses on the group as a whole, rather than its singular members
•each group participant is required to complete a short form that usually consists of the individual’s name, address, SSN, dependent information, & beneficiary designation
•typically no medical questions
•once the group plan is in force, premiums are based on the experience of the group
•usually renews annually
•premiums can fluctuate year to year
•some considerations may include:
-stability of the group—>group does not have excessive employee turnover
-persistency of the group—>groups that change insurers every year may not represent a good risk
-existence of the group—>insurance purchase must be incidental to the group’s formation
What are common eligibility requirements for employees to participate in a group life insurance plan?
•employers cannot choose which individuals will be covered, but can determine which classes of employees will be eligible
Common classes:
•full-time vs. part-time
•years of service
•could require that employees be on active status at the time they enroll in the plan-i.e., not on a disability leave of absence or other inactive status
Ex. An employer could decide to make the group life insurance plan available to employees who have been working for an employer on a full-time basis for at least 1 year
What is the probationary period?
•requires new employees to wait for a certain period of time before they can enroll in the plan
•typically range from 1-12 months
•time period chosen by the employer
•must apply to all eligible employees without discrimination
What is the enrollment period?
•eligible employees must sign up within 31 days after the probationary period ends
•can enroll without providing evidence of insurability—>no medical questions or exams needed
What is the coverage amount for group life insurance?
•employers & unions determine the amount of coverage their employees & members will receive
•actual amount of coverage does not have to be the same, but coverage must be based on a formula that applies to all plan participants
Common formulas:
•a % or multiple of earnings
Ex. Participating employees receive coverage equal to their earnings, half their earnings, or some other multiplier
Ex. Amount of coverage based on years of service-participants receive $5k for each year of employment, i.e., a 2-year employee receives $10k
•a coverage limit for different classes of employees
Ex. Employees receive $20k, supervisors $50k, and corporate officers $100k of coverage
**coverage for dependents is usually a lesser amount than the limits established for employees
What are some typical eligible dependents?
•insured’s spouse
•insured’s children
•insured’s dependent parents
•other individuals financially dependent on the insured
**dependent coverage is typically a smaller amount than the employee’s coverage
Certificate holders & dependents lose their coverage if:
•the certificate holder leaves the employer
•the employer discontinued the plan
•the insurer does not renew the policy
Dependents also lose their coverage if:
•the certificate holder dies
•they are legally divorced from the certificate holder
What are the rules for the conversion privilege?
In the event certificate holders or dependents lose group coverage, they must have the right to convert their group coverage to an individual policy
—>varies state-to-state
—>following rules apply:
•conversion must be done within 31 days from the date coverage is lost
•converted policy must be permanent insurance, NOT term
•converted policy must provide the same coverage amount as the individual had under the group policy
•the premium bill I’ll be based on the insured’s attained age at the time of conversion
•no proof of insurability is required
**coverage continues through the conversion period (the 31 days following the loss of group coverage)
—>if the insured dies during that period, the death benefit is paid as if the insured had decided to convert the group coverage to an individual policy
Credit life insurance-individual vs. group
Group:
•sponsored by lender
•lender is beneficiary
•usually no medical questions
•cheaper than individual policy
•insurance no greater than debt owed
•stops if debt is paid
Individual:
•insured is usually policyowner
•assigned to lender
•death benefit can exceed the debt
•doesn’t stop when debt is paid
•can be more expensive than group
•usually requires medical questions
creditors sponsor group credit life insurance plans for their borrowers as part of the loan transaction
•amount of insurance is equal to the debt owed
Ex. An individual, during the financing process, may be offered credit life insurance in the amount of a car loan & the cost will be included in the monthly car note
—>if the borrower dies, the lender, the beneficiary, will receive the amount of life insurance to pay off the outstanding debt
•the same borrower could choose to purchase an individual policy & assign the death benefit to the lender
Advantages for an individual policy:
-policyowner controls the individual policy, the lender controls/owns the group policy
-policy can continue even after the debt/loan has been paid off
Disadvantages for an individual policy:
-individual policy premiums can be higher than group coverage
-evidence of insurability is required for individual coverage, but not usually for group coverage
