Ch.7 Principles & characteristics of Group Life Insurance

Group Insurnace vs. Individual Insurance

1. Underwriting a) In the 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 w/ individual insurance, the insured is also the policy owner. While there may be 3rd party ownership, this is not common. b) W/ group insurance, the insured is rarely the policy owner. There is 1 mater policy owned by the employer or plan sponsor. i. Employers or plan sponsors receive the master policy, & are the policy owner or contract holder. ii. Employees ir plan participants receive the certificates of insurance NOT individual policies 3. Policy Type a) Group insurance is always temporary insurance. 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 more expensive for the insurer to issue (underwrite, commission, billing etc). b) Group insurance are less expensive for the insurer to underwrite, issue, & maintain. Much cheaper for customers to buy. c) Employer or sponsor may pay a substantial portion or all of the premium cost for the group insurance policy. W/ individual insurance, the customer is always responsible for all premium cost.

Eligible Groups

A group of people cannot form an organization whose primary purpose is to secure insurance coverage for the people.

Certificate of Insurance

A legal document that indicates that an insurance policy has been issued, and that states both the amounts and types of insurance provided.

Conversion Privilege

Allows the 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).

Credit Policies

Are designed to help the insured pay oof 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).

Blanket Health Plans

Blanket health insurance is issued to cover a group who may be exposed to the same risks, but 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

Master Policy

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.

Franchise Insurance

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 life insurance.

Continue of group life Insurance

The employer or group providing the group life coverage pays all or a portion of the premium & is the policyholder. -The employer or plan sponsor receives the master policy. In contrast, the covered employees (certificate holder) or plan participants receive a certificate of coverage or booklet

Contributory Plan

an employee group insurance plan in whic employees share the cost. -the insurance company requires at least 75% of the eligible employees must be insured in most states.

Group Insurance

is a way to provide life insurance, health insurance, or both kinds of coverage for a number of people under one contract. -group insurance is provided by an employer for its employees; however, it's available to other groups. -Different from individual life insurance which is written on a single life, group insurance is comprised of annual life insurance NOT Individual life, & underwriting handled differently. -Group life insurance is 2-party contract BTW policyholder & the insurer just like an individual contract.

noncontributory plan

is an employee benefit plan under which the employer bears the full cost of the employee's benefits; in most states, the plan must cover 100% of eligible employees. -The employee do NOT Contribute to the cost of the plan.

Employer Responsibilities

is responsible for the selection group coverages, record keeping, & employee enrollment. -The employer is NOT permitted to discriminate esp. when the plan is noncontributory

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 w/ higher persistency are more stable & profitable than those w/ lower persistency. -Companies aim for 80% persistency after 3 years & 60% after 5 years. Meaning, 60% of the policies written 5 years ago should still be active.

Exam tip

since the individual does not own or control the policy, they are issued a certificate of insurance (sometimes called certificate of coverage & 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.