Chapter 17

New point not in the text: most states now limit Group Life dependent coverage to 50% of the coverage purchased by the employee. Question: an employee has a $10,000 group life policy. The employee's dependent spouse may purchase a group life policy with the maximum death benefit of:

$5,000 New Point: NAIC recommended legislation proposes to each state limit the amount of employee group life that dependence may purchase to 50% of the amount purchased by the employee.

Agnes quit her job on March 3rd and her group life coverage terminated on that date. Her company does not inform her of her right to convert her Group Life policy. On April 10th Agnes applies for conversion. What will happen?

She will be issued a standard Whole Life policy for the original face amount because she made the request within the 60 day limit. If her employer failed to notify her of her conversion, right, she has 60 days from termination to choose to convert the policy to an individual policy. The insurer will require Agnes to purchase a whole life rather than a term policy, however, if Agnes had been promptly notified of her right to convert, she would have had only a 31 day conversion privilege. Even if she converts, Agnes is no longer considered to be a member of the group.

Which is true regarding taxation of group life insurance in an employment setting?

The beneficiary is not taxed on the death benefits. With group, life insurance policies, the employer usually pays the premiums and gets a business, tax deduction for the cost of the premiums. The employees do not get a tax deduction, even if they pay all or part of the premiums. The death benefit passes to the beneficiary tax-free , so, the correct answer is the beneficiary is not taxed on the death benefits.

Justin was fired from his job on August 8th and his company promptly informed him on that date that he had the right to convert his Group Term Life policy. On September 24th, Justin decided he would like to convert. What will happen?

The conversion privilege is no longer available because he waited beyond 31 days. No policy will be issued. If a former group member is promptly notified of their conversion, right, the individual only has 31 days to request conversion. The insurer will only issue a whole life policy, not a term policy. In this case, Justin has not made the request within 31 day time limit so he has lost his right to convert to an individual policy.

Which of the following statements regarding conversion of a Term Life policy from a Group plan to an individual policy is correct?

The new converted policy will likely be Whole Life.

Under federal tax laws, employers may deduct the cost of employee life insurance. However, employees must declare the cost of employee life insurance as taxable income if the amount of the group policy exceeds.

$50,000 Congress requires the employee to pay taxes on the portion of life insurance premium used to purchase more than a $50,000 death benefit.

A grandparent purchases a $1,000 Whole Life insurance policy for a two-year-old grandchild. The producer should suggest including in the policy:

A Guaranteed Insurability Rider A review from an earlier chapter: $1000 whole life policy provides an adequate coverage. The guaranteed insurability rider will permit the child purchase additional insurance at future set times. The problem with the cost of living rider is that it will only maintain the buying power of the thousand dollar policy - a policy that is simply too low to begin with.

Which rider protects the life insurance policy's coverage if the Grace Period expires?

Automatic Premium Loan Rider This is a key exam point in a review of an earlier chapter. The automatic premium loan rider will automatically make a loan from the cash value account to keep the premium up-to-date. The other riders listed do other things, but don't keep the policy coverage in effect.

Molly quit her job at the factory. The factory had provided a Group Life policy covering Molly, husband Hank, and their daughter Emily. Which is true regarding the issue of conversion to an individual policy?

Molly, Hank, and Emily may, within a set time, request to convert to individual Whole Life Policies. Upon termination of group life coverage, each covered family. Member may convert to an individual whole life policy with a set time. The time is 31 days if they were notified promptly of the conversion right; 60 days, if they were not promptly notified. The insurer will require that the converted policies be whole life rather than term.

A company provides a noncontributory Group Term Life Insurance plan for its employees. Each eligible employee has $35,000 in coverage. What portion of the premium payment is taxable as income to the employee?

None! As long as the employer is not buying more than $50,000 coverage per employee, there is no tax upon employee. However, that portion of the premium used to purchase over $50,000 coverage would be taxable to the employee.

What is the contestable period for Group Life?

two years Group life policies, have a two-year contestable period. if fraud or misrepresentation is discovered after that date, the "statue of limitations" has passed and the insurer has no right to contest the policy. Note: looking ahead to health insurance, the only time the contestable. Will get weird will be with individual health policies. So, individual life, group, life, and group health will all have the same two-year contestable period.