Markets and Social Security Chapter 6
Employer-sponsored Plans
-employer is a partnership, corp, or sole proprietorship
Annual renewable term
Type of insurance written for group plans
Employer-employee groups
contributory-employess contribute to premium and 75% employee participation Noncontributory- employer pays 100% of premium with 100% employee participation -may extend to dependents
In an employer-sponsored group life insurance plan, the employee has control over which of the following? A Type of policy B Premium payment option C Amount of benefits D Naming a beneficiary
d
Survivor Benefits
death benefits paid out to surviving spouse and children
late enrollee
must provide evidence of insurability
Open enrollment periods
offered annually for eligible to non covered wo evidence of insurability or make changed
Initial open enrollment
qualifies after probation period if enrolled at this time coverage is guaranteed, evidence of insurability is not required
Business Uses of Life Insurance
to cover the unexpected death of business partners, executives, and key employees by providing funds for the continuation of the business, not for the heirs of the decedent.
Fully Insured
A status of complete eligibility for the full range of Social Security benefits: death benefits, retirement benefits, disability benefits, and Medicare benefits. Earned 40 quarter credits or approx. 10 yrs
Surviving Children
Eligible for benefits and covered to age 18 or 19 if still enrolled in high school.
Late enrollees
Individuals who do not join the group plan when eligible and are required to provide evidence of insurability or wait until the next open enrollment period
Certificate of insurance
Issued to each participant describing the benefits, identifying the insurance company and policy number
Group Conversion
There is a conversion period of 31 days in which the employee may, upon termination of eligibility and without evidence of insurability, convert his/her group life insurance benefit to an individual permanent policy
Entity Plan
eA buy-sell plan in which the business agrees to buy the deceased partner's share of the business. Entity plans are best for businesses with several partners.
Surviving Parent
eligible for monthly benefits if being at least 1/2 supported by deceased worker
Social Security
federal program of disability and retirement benefits that covers most working people
Group Insurance Market
-insures a group under a single contract -State and federal laws restrict the insurer's underwriting criteria for group policies. purpose of group life is to underwrite the combined risk of a group of individuals as a single policy. group sponsor, such as an employer, benefits both from the standpoint of employee retention and also because costs of the plan are lowered because the sponsor takes on some of the tasks of marketing and administration. The cost of the plan is determined by the average age of the group, size of the group, industrial classification (nature of the work involved),and experience rating based on the group's past claims. These factors are more important than the actual overall health of the group.
Group Underwriting
-still must control adverse selection
Group conversion
Allows an employee who loses eligibility for enrollment in a group plan to get coverage under an individual plan without evidence of insurability
Master policy
Contract issued to plan sponsor
Contributory plan
Employees pay a portion of the premium and at least 75% of eligible employees must participate
Noncontributory plan
Employer pays the entire premium and 100% of eligible employees must participate
Natural group
Formed for a purpose other than for purchasing group insurance
Open enrollment
Time period employees can join the group plan and coverage is guaranteed without evidence of insurability
Third-Party Ownership
When a person(s) other than the insured purchases the insurance policy.
Currently Insured
and eligible for survivor benefits, if you have earned at least 6 credits under age 24 in the past 13 calendar quarters/3 years
A Buy-Sell Agreement: A Describes which relatives of a business owner have the right to purchase that person's interest in the business upon death B Assures the continuation of the business by providing benefits to the surviving business partners to buyout a business partner's interest in the event one of them dies unexpectedly C Specifies the conditions and requirements that are necessary to sell the business to a third party if a business owner dies unexpectedly D Provides a business with funds in the event of the death of a key person who is not an owner
b
In an employer-sponsored group life insurance plan, the employee's description of benefits is referred to as the: A Master Policy B Change of beneficiary form C Certificate of Insurance D Claim form
c
Key Person
have a significant impact on the revenue and profitability of the company, especially in small businesses.
retirement benefits
when workers retire, those who have paid social security taxes become eligible to receive monthly benefits, full benefits at 67, permanently reduced benefits at 62
Characteristics of Group Insurance Plans
In a group insurance plan, the insurer issues a Master Policy to the plan sponsor and each participant receives a Certificate of Insurance covering the participant; and if offered, his/her spouse and dependents. Participants in the plan do not have personal control of the policy or policy changes as with an individual policy. Group insurance is a contract between the sponsor and the insurance company. The sponsor may set the terms and determine which classes of employees qualify, such as full-time vs. part-time employee. The plan cannot discriminate so all members of the eligible class of employees must be eligible for predetermined benefits based on a single formula, such as the same percentage of annual income. The sponsor can elect to discontinue the plan and the insurance company can increase the rates it charges. To be eligible for a group plan, the group must be a natural group, meaning it was formed for a purpose other than for procuring or reducing the cost of insurance. Group plans must also have a grace period of typically 31 days and is usually written as Annual Renewable Term. Evidence of insurability is not required if the individual enrolls when eligible.
Which of the following is a characteristic of a contributory plan? A Employers must enroll 100% of eligible employees B Dependents of eligible employees must pay 75% of the premium C Eligible employees pay a portion of the premium D Part-time employees must be eligible to participate
c
An advantage of key person life insurance is to: A Provide life insurance benefits to all eligible employees and their dependents B Protect a partnership against the death of a partner by providing benefits to buyout a deceased partner's share of the business C Provide the family of the deceased employee with up to ten years of the employee's lost future income D Provide the owner of the policy with funds to recruit and train a replacement employee upon the death of an employee who contributes substantially to the success of a company
d
Social Security monthly retirement benefits are determined using a formula that calculates which of the following? A FICA B FRA C COLA D PIA
d
Buy-Sell Agreement
establishes a price with the intent to purchase, at a predetermined value, the assets of a business should one of the contract participants predecease the others used with a sole proprietorship, a partnership, or with stockholders of a closed corporation
Death Benefit
one-time lump sum of $255 paid to either spouse or minor children
Cross Purchase Plan
partners of a business purchase life insurance on each other. At the death of one of the partners, policy proceeds are used to purchase that person's interest in the business from his/her heirs. Each partner owns insurance on each of the other partners.
Probationary period
set by employer protects against preexisting conditions deters immediate claims wait time from hire date to eligible enrollment