Group Life Insurance (Lesson 13)

The NAIC Group Life Insurance Definition and Group Life Insurance Standard Provisions Model Act

Defines the requirements of a group life contract adopted by each state

Associations & Organizations

Group insurance is also common in non-employment groups including professional, civic, community organizations, alumni and professional associations, and societies such as fraternal benefit societies or other similar groups

Welfare Arrangements

known as Multiple Employer Welfare Arrangements, or MEWAs, are utilized by two or more employers of similar professions or trades (but not associated through a collective bargaining agreement) who group together and form a type of multiple employer trust or other arrangement in order to provide benefits to participating employers.

Taft-Hartley Trust

specific to employers who are associated through a common bargaining agreement. The name of this trust refers to the two Congressmen who spearheaded the Labor Management Relations Act of 1947, also referred to as the 'Taft-Hartley Act' which set forth regulation for such trusts to provide safeguards against unethical mismanagement of employee funds and plan benefits.

the requirements of a group life contract adopted by each state

A 'true group' is defined by the NAIC as a group that includes 10 or more covered people under a single master contract; however, some states are more lenient on this requirement No required individual medical exam The employer is the 'master policyowner,' the employee is issued a 'certificate of insurance' Coverage is established for the benefit of the employees and their dependents, not for the benefit of the company Premium rates are based on the group, not the individual Employee benefit levels are based on tenure

Group Paid-Up Life

involves a combination of both term and whole life policies where the employer pays for the term portion and the employee pays the whole life portion.

In a group life contract, evidence of insurability is

required only after the enrollment period ends.

Conversion Privilege

A group life insurance policy must allow an employee to convert his or her policy into an individual plan with the same insurer upon leaving the group due to termination of employment or termination of the group's master policy without requiring the individual to provide proof of insurability. The conversion period is usually 31 days from the time of group policy termination, during which time the individual continues to be insured by the group life policy.

What is the most common type of employment-related group life insurance?

Annual Renewable Term (ART)

The most common type of employment-related group life insurance

Annual Renewable Term (ART), provides life insurance on a one-year term basis that is most often renewable without proof of insurability and allows the insurer to adjust annual premiums based on the experience of the group.

Individual vs. Group

Credit life insurance serves to protect both the debtor and creditor in the event that a debtor dies and is not able to finish paying of his or her debt. A credit life policy can be purchased by an individual who assigns the creditor as his or her policy's beneficiary, or it can be purchased by a creditor who serves as the master policyowner and assigns certificates of coverage to debtors in which it transacts business.

Group Life Plan Sponsors

Employer groups, unions and labor groups, associations, and fraternal benefit societies, among other plan sponsors, establish group life plans with the intention of providing members with life insurance as a benefit of employment or membership in the group. Acting as a fiduciary, these plan sponsors are responsible for administering the group's life insurance plan

provisions of a group life contract that must be followed by the insurer and employer

Grace Period - 30 or 31 day grace period for premium payments Incontestability - Policy cannot be contested after period of time (usually 2 years) Entire contract - Similar to individual life (application plus contract) Representations, not warranties, are given regarding an individual's health Evidence of insurability - Required after enrollment period ends (after 30 or 31 days) Misstatement of age or gender - Premium or benefits are adjusted to correct age and gender, depending on if the insured is living or deceased Facility of payment - Death benefits can be paid to a close relative or friend of the policyowner in the event no beneficiary is named or living, or if the named beneficiary is a minor. Conversion - The ability for an employee to convert his or her policy if they are terminated from the group or if the group terminates the master policy

Assoc. requirements

Having been established for at least 2 years before attaining group insurance Maintaining a constitution and by-laws requiring at least an annual meeting of the association Requiring membership dues to be collected, member voting rights and representation within the governing board of the association or similar group Participation by all of any classes of members selected by the association or similar group to participate in the group plan Policy premiums paid by the established trust fund for the purpose of benefiting members of the group, not the group's organizers

Group Life Insurance Beneficiary Designations

In an employer-based group life policy, each employee has the right to choose anyone he or she wishes as the beneficiary of his or her life insurance policy. Employer group life insurance contracts must be established for the benefit of the company's employees and their dependents, not for the benefit of the company.

'class' structure 1

In an employment-based group, class structure is based on tenure or the job description of the company's employees. For instance, benefit levels may vary between hourly and salaried employees, management and company executives; benefit levels are based on this structure to avoid employee discrimination within the same class, or level of employment.

Types of Eligible Life Insurance Groups

Labor Unions Welfare Arrangements Associations & Organizations Credit Unions Blanket Customer Groups (teams, passengers and others)

Labor Unions

Multiemployer Plan is established by two or more employers within a related industry who are also part of a collective bargaining agreement. Unions and similar labor organizations establish multiemployer plans for the benefit of employees who may transfer between employers within the same union Because a collective bargaining agreement exists between these employers, the group is categorized and treated as a single entity.

Multiple Employer Plan needs a:

Multiple Employer Trust (MET)

Blanket Customer Groups (teams, passengers and others)

Specific members are not listed under the policy and proof of coverage is recognized by proof of membership to the group. An example of a college covering all full-time students shows that due to the continual changing of the population of the group, membership to the college equates to membership under the group insurance.

MultiEmployer Plan needs a:

Taft-Hartley Trust

Credit Unions

Two or more credit unions can group together and form a trust for the purpose of providing insurance for members of each participating credit union. Similar in structure to other group trusts, credit union trusts are managed by trustees who serve as the master policyowner of the group plan, issuing certificates of insurance to credit union members.

What is established to fund a multiemployer plan?

a Taft-Hartley Trust specific to employers who are associated through a common bargaining agreement.

NAIC Model Group Life Insurance Provisions

certain provisions of a group life contract must be followed by the insurer and employer

Credit Life Insurance

covers an insured's debt to a creditor upon death. A credit life policy is a decreasing term life policy that is issued by an insurer associated with a bank or similar lending institution and covers the amount of debt owed by a debtor over the period of time in which he or she is paying off the debt.

Multiple Employer Trust (MET)

each employer joins and pays premiums towards in order to participate in the multiple employer plan

Individual Employer Plan

established by a single employer to provide insurance coverage for its employees.

Multiple Employer Plan

established by two or more similar employers within a related industry, but who are not part of a collective bargaining agreement. The purpose of a multiple employer plan is to provide smaller employers, who are related based on the type of business or industry, with the opportunity to group together in purchasing life insurance to increase the size of the group in order to provide life insurance for employees at a more affordable rate

Group Life Insurance

provides life insurance protection for members of a particular group, such as an employer group, multiple employer trust (MET), an association or labor group that meets the requirements set forth under state law for group life insurance.