Chapter 7: Group Life Insurance

Other Forms of Group Life Insurance (4)

Franchise Life Insurance Group Credit Life Blanket Life Insurance Group Permanent Life

Conversion to Individual Policy

If a member's coverage is terminated, the member and his dependents may convert their group coverage to individual whole life coverage, without having to show proof of insurability.

Group Whole Life

Though not as common, group whole life offers permanent protection for insured members under the group. ex: group ordinary, group paid-up, and group universal life

An important underwriting principal of group life insurance is that

a large percentage of persons in the group must be covered by the insurance

Taxation of Group Life Plans (in order to receive favorable tax treatments)

determining eligibility - must benefit at least 70% of all employees. At least 85% of all participating employees must not be key employees premiums for group life insurance - non deductible if paid by employee, but employer receives deductibles proceeds taken in a lump sum are tax free proceeds taken in installments will be subject to taxes on the interest portion of the installments

Group Life Insurance

usually written for employee-employer groups as an annual renewable term policy typically issued as level term insurance

Group Permanent Life

Some group life plans are permanent (whole life) plans, using some form of permanent or whole life insurance as the underlying policy. The most common types of permanent group plans are group ordinary, group paid-up, and group universal life.

Group Paid Up Plans (whole life)

a. Combines term life with whole life b. Death benefit is a total of the two plans c. At retirement or termination the employee is entitled to the cash value (paid-up) policy

Group Universal Life (whole life)

Flexible premium composed of insurance protection and cash value accumulation

Features of Group Insurance

- the individual does not have to provide evidence of insurability- group underwriting is involved - are not issued as individual policies- master contracts are issued instead - low cost due to lower administrative, operational, and selling expenses associated with group plans - flow of insureds: entering and exiting under the policy as they join and leave the group Note: Since the individual does not own or control the policy, they are issued a certificate of insurance to prove they have coverage. The actual policy, which is called the master policy, is issued to the employer. - Employees are called - certificate holders - Employers are called- contract holders

How benefits are determined

1. earnings 2. employment position 3. flat benefit

Types of Group Life Insurance Plans (3)

1. group term life 2. group whole life 3. dependent coverage

Group Credit Life

These are set-up by banks, finance companies, etc. in case the insured dies before a loan is repaid. Policy benefits are paid to the creditor and used to settle the loan balance. The premiums are usually paid by the borrower. A decreasing term policy is commonly used.

Franchise Life Insurance

This is used where participants are employees of a common employer (i.e., the employer may operate several companies) or are members of a common association or society. The employer/association/society is a sponsor of the plan and may or may not contribute to the premium payments. Unlike the employer's group plan, each individual will be issued an individual policy which will remain in force as long as premiums are paid and the employee/member maintains their relationship with the sponsor. These are used by small groups who individually do not meet the state's minimum numbers required by law.

flat benefit

This type of schedule provides the same amount of life insurance all employees in an organization regardless of their earnings or position

employment position

This type of schedule so it's in employees life insurance amount according to their position with the company for example general staff may be provided with $30,000 of coverage managers with $50,000 and vice presidents was $100,000

Contributory Plan v. Noncontributory Plan

contributory: an employee group plan in which employees share the cost. Requires that at least 75% of employees be eligible noncontributory: an employee group plan in which employees do not share in the cost. Insurance company's require that 100% of all employees be eligible

Eligibility of group members (4)

- Employee must be full time and actively working - If contributory, employees must approve of automatic payroll deduction - New employee probationary period is usually 1 to 6 months - The employee has 31 days during the enrollment period to sign up, otherwise they may need to provide evidence of insurability

Eligible Groups (6)

- as long as they are formed for a reason other than to purchase insurance - there is no minimum # of employees for group life 1. single-employee groups 2. multiple-employee groups 3. trade associations 4. credit/debit groups 5. fraternal organizations 6. Trustee groups (established by two or more employers of labor unions)

Classification of Risk

-preferred- low risk - (lower premium) -standard - average risk - no extra ratings or restrictions -substandard - high risk - rated up - higher premiums -declined - non insurable - potential of loss is too high

group term life

Life insurance is normally offered as a guaranteed annual renewable term policy. The policy is issued for one year and may be renewed annually without evidence of insurability at the discretion of the policyowner.

Dependent coverage

Most group life insurance policies cover the member's dependents, as long as the amount of coverage does not exceed 50% of the insured member's coverage.

Conversion Period

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.

Group Ordinary (whole life)

Insurance that provides coverage for a group of persons, usually employees of a company, under one master contract.

Blanket Life Insurance

Covers groups of people exposed to the same hazard, such as passengers on an airplane. No one is named on the policy and there is not a certificate of coverage given out. Individuals are only covered for the common hazard.

Group Policy Termination

If the master policy is terminated, each individual member who has been insured for at least 5 years is permitted to convert to an individual policy, providing coverage up to the face value of the group policy.