Unit 5- Group Insurance

probationary period

a probationary period may be required for new employees, which means they must wait a certain period of time (usually one to six months) before they can enroll in the plan

adverse underwriting decisions

a risk will be rejected when the insurer believes the policy cannot be profitable at a reasonable premium or with reasonable coverage modifications if a risk is rejected on the basis of information in an investigative report, the applicant must be notified and given the name and address of the reporting company. In health insurance, when renewal is denied, the insured must be given a written explanation for nonrenewal or be notified that the explanation is available upon written request

4 types of groups- association or labor group

a third type of organization eligible for group insurance includes members of labor organizations, such as the United Auto Workers. An association or labor group must have the following characteristics to be considered an authorized group: ■■ have a constitution and bylaws ■■ be organized and maintained in good faith for purposes other than obtaining insurance ■■ have insurance for the purpose of covering members and their employees for the benefit of persons other than the association or its officers or trustees

statutory requirements in group underwriting- statutory requirements

an eligible group must not discriminate in favor of individuals in a manner that increases the opportunity for adverse selection against the insurance company. For instance, if an employer has five data entry clerks in the same job classification (job title and salary range), the employer cannot single out one to receive benefits greater than the other four. Therefore, employees will be grouped under such classifications, as eligible full-time employees, clerical workers, hourly employees, salaried employees, executives, and so forth

statutory requirements in group underwriting- optimal requirement- predetermined coverage amount

coverage must be uniform for plan participants. Individual members of the group cannot select the level of benefits for their own coverage. Coverage can be based on such things as the number of years with the company, occupation, or salary

credit insurance

credit insurance is written to provide payment of the insured's debt when he dies prematurely or is disabled as a result of accident or sickness. The creditor is the policyowner and the debtor is the insured. Benefits under credit insurance are not permitted to exceed the amount of indebtedness

4 types of groups- employee or individual employer group

employee or individual employer group—the first type of group would be the employees of an eligible employer. The employer is the policyowner and establishes the eligible class of employees to be covered under the group policy (full-time, salaried, retired, and so forth)

premiums

group insurance policies are often able to provide coverage at a lower premium than individual policies can. Group insurance premiums are based on the experience of the group as a whole. The premium may be paid entirely by the policyowner, or it may be paid jointly by the policyowner and the insured if the insured contributes money toward the premium, the plan is considered contributory. In most states, at least 75% of eligible employees must participate under a contributory plan if the premium is paid entirely by the policyowner, the plan is considered noncontributory. All of the eligible members must participate in noncontributory plans

group underwriting considerations

group life insurance is usually written on a group basis as opposed to an individual basis. Each group participant completes a very short application. No medical underwriting takes place under contributory plans, the period of time during which the employee may enroll and receive coverage without evidence of insurability is known as the eligibility period (or enrollment period) evidence of insurability must be furnished by an employee who wants to join a contributory group after the eligibility period has ended

statutory requirements in group underwriting- optimal requirements- group size

most insurers require a minimum number of employees or plan participants before a group health insurance plan may be written. This requirement may vary depending on state laws. Typically, the minimum group size for health insurance is 10, but it could be as few as 5 or some other number

4 types of groups- multiple employer group

multiple employer group— several employers forming a trust to combine their workers for life insurance eligibility. The trusts are called multiple employer trusts (METs) a policy may be issued to the trustees of a trust group if the fund has been established by: ■■ two or more employers in the same or related field ■■ one or more labor unions or associations (this is known as a Taft-Hartley trust) the trustees are the policyholders of the plan that covers eligible employees

funding group insurance

shared funding arrangement- allows the employer to self-fund health care expenses up to a certain limit. The employer can select a deductible and pay covered expenses for any individual incurring claims up to that maximum, at which point the insurer assumes the risk retrospective premium arrangement- the insurer agrees to collect a provisional premium but may collect additional premium or make a premium refund at the end of the year based on actual losses minimum premium plan- occurs when the employer agrees to fund expected claims and the insurer funds excess claims. The employer and insurer agree to a trigger beyond which the insurer is liable. The employer is responsible for a minimum premium consisting of administrative expenses, reserves, and a premium for stop-loss to fund claims over the trigger a large employer may elect to fully self-fund or may self-fund the group benefits but contract for administrative services via an administrative services only (ASO) contract

group life insurance

states generally define a true "group" as having at least 10 people covered under one master contract the plan sponsor (employer, union, association, and so forth) is the policyholder responsible for administering the plan and making premium payments to the insurance company premiums are based on the experience of the group as a whole. As the master policyowner, the group receives and holds the insurance policy. The insured group members receive a certificate of insurance that certifies the coverage, the benefits under the policy, the name of the covered individual or individuals, and the name of the beneficiary, if applicable

statutory requirements in group underwriting- optimal requirements- group contract & certificate of coverage

the basic principle of group insurance is that it provides insurance coverage for a number of people under a single master contract or master policy the employer (or group) is the applicant and contract policyholder; the employees, as group members, are not parties to the contract. In fact, they are not even named in the contract the employee does not receive a policy and instead receives a certificate of insurance which summarizes the coverage terms and explains the employee's rights under the group contract

statutory requirements in group underwriting- optimal requirements- employer control

the employer should be in charge of enrollment, premium payment, benefit selection, and all other areas of administration that are not an insurance company function. It is the employer's duty to see that plan administration is conducted in a confidential, legal, and objective manner

adverse selection

the tendency for poor risks to seek and be covered for insurance is more often than average risks. Thus, in a group situation, the underwriter must consider such things as the type of work done, the ages of the participants, and the probability of this particular group being an adverse risk to the company. For example, a group of coal miners presents a much higher risk of disability/premature death than a group of bank employees the larger the group to be insured, the more predictable will be the expected losses from the group

statutory requirements in group underwriting- optimal requirements- eligibility

the underwriter first should determine that the business is one that the insurer will cover. Today, all occupations can get insurance coverage. However, the higher the risk, the higher the premium

statutory requirements in group underwriting- optimal requirements- enrollment percentage

the underwriter should determine that individual participation meets company guidelines to prevent adverse selection a majority of eligible individuals should be members of the group of insureds

statutory requirements in group underwriting- optimal requirements- insurance incidental to group

the underwriter should determine that the group has not been formed only for the purpose of purchasing insurance

statutory requirements in group underwriting- optimal requirements- compostion of group

the underwriter should determine that there is a reasonably steady flow of new members into the group. If a group were to keep the same individuals in the group, the chance of accident, illness, or death would increase as the group became older, and rates also would increase the underwriter also must be concerned about currently disabled employees or their dependents a new insurer may decide to decline the entire group because of a large number of current claims a new insurer may establish a preexisting condition provision in the group contract that excludes coverage for any condition that exists before the effective date of coverage

third-party ownership

third-party ownership exists when a party other than the insured is the owner of the policy. For example, third-party owners could include a wife who is the owner of a husband's policy, a parent who is the owner of a child's policy, or a corporation that is the owner of a director's or officer's policy