Principles and Characteristics of Group Life Insurance

noncontributory plan

The employer pays the entire cost of the plan. The insurance company requires that 100% of all eligible employees participate. The most significant benefit of a noncontributory insurance plan is that it helps the insurer avoid adverse selection

types of groups eligible for group life insurance

employees of a single employer credit groups labor unions multiple employer groups

A group of persons who are engaged in occupations of a common industry may

form an association (i.e., all hat manufacturers) and later purchase group coverage.

contributory plan

An employee group insurance plan in which employees share the cost. The insurance company requires that at least 75% of all eligible employees participate.

how does group insurance differ from individual insurance in policy type?

Group life insurance is always considered temporary insurance. Typically, annually, renewable term is used, which provides a fixed amount of coverage throughout the contract. Individual insurance can be any of the previously discussed temporary or permanent insurance products. Whenever a person converts their group insurance to individual insurance, they are always converting temporary protection to permanent protection

how does group insurance differ from individual insurance in the underwriting process?

In an individual policy, the insured must prove they are insurable In group insurance, the group must meet various criteria, but the insureds are not individually underwritten.

how does group insurance differ from individual insurance in cost?

Individual insurance policies are considerably more expensive for the insurer to issue (underwrite, commission, billing, maintenance, etc.). As we've learned, these administrative costs are passed on to the customer, making individual policies more expensive to purchase. Group insurance policies are substantially less expensive for the insurer to underwrite, issue, and maintain. As such, group insurance is much cheaper for the customer to purchase. In some cases, the employer or sponsor may pay a substantial portion or all of the premium cost for the group insurance policy. With individual insurance, the customer (policy owner) is always responsible for all of the premium cost

While there is generally an employment or professional relationship present in order for group coverage to be secured, this is not always the case. Examples of some of the groups eligible to participate in group insurance exam include but are not limited to:

Single employee groups (employer) Multiple employee groups (employment-related) Labor Unions Trade Associations Credit/Debit groups Fraternal Organizations Customer groups (such as credit union members) Trustee Groups (Established by two or more employers or labor unions)

Eligibility of Group Members - (employees)

The 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.

how does group insurance differ from individual insurance in policy ownership?

Traditionally with individual insurance, the insured is also the policy owner. While there may be instances of third-party ownership, this is not common With group insurance, the insured is rarely the policy owner. There is one master policy owned by the employer or plan sponsor i. Employers or plan sponsors receive the master policy, and as such, are the policy owner or contract holder. ii. Employees or plan participants receive the certificates of insurance (not individual policies), and as such, are certificate holders.

group life insurance

a type of term life insurance that covers a group of people under a single policy contract. Typically, it is offered by a large association or entity for its workers. Depending on the type of policy, the workers may contribute to the cost of the policy through weekly or monthly paycheck deductions (premium payments).

the employer or group providing the group life coverage pays:

all or a portion of the premium and is the policyholder. The employer or plan sponsor receives the master policy

typically, group insurance is provided by

an employer for its employees; however, it is available to other kinds of groups as well, as we will see. Different from individual life insurance, which is written on a single life, group life insurance is written on more than one life Group life insurance is usually written for employee-employer groups and is most often written as an annually renewable term policy

Businesses are operated in order to produce a product or provide a service and earn a profit, and therefore

are eligible to purchase group insurance

the covered employees or plan participants receive a:

certificate of coverage or a booklet that describes the benefits, the coverage provided, and how long the insurance coverage will last.

With a contributory group insurance plan, the employees or plan participants

contribute to the premium payments.

With a noncontributory group insurance plan, the employees or plan participants do NOT

contribute to the premium payments.

since the individual does not own or control the policy, they are:

issued a certificate of insurance (sometimes called certificate of coverage and 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.

Group life insurance differs from individual life insurance contracts in several ways. One of the differences between the two is that group insurance is

most often comprised of annual renewable term life insurance. In contrast, individual insurance contracts may be term life or whole life insurance.

Group insurance is a way to

provide life insurance, health insurance, or both kinds of coverage for a number of people under one contract.

a group of people cannot form an organization whose primary purpose is to

secure insurance coverage for the group

the employer is responsible for the:

selection of group coverages, record keeping, and employee enrollment. The employer is not permitted to discriminate, especially when the plan is noncontributory

The covered employee or plan participant is also known as

the certificate holder

the primary requirement for groups to offer group insurance is that

the group is formed for a purpose other than acquiring insurance. Offering group insurance products should be a benefit of the group, not the purpose of the group. States may impose additional requirements. For example, states may require the group to have existed for more than two years or has a minimum of two members.

Group life insurance coverage is characterized by

the underwriting of numerous individuals rather than one.

Group term life insurance, like all insurance contracts previously mentioned, is a

two-party contract between the policyholder and the insurer (just like an individual contract). However, unlike an individual insurance policy, the insured is almost never the policy owner of group life insurance. The employer generally plays the role of the policy owner