Unit 6
Flat benefit
A flat benefit schedule provides the same amount of life insurance to all employees, regardless of their earnings or position. Flat benefit schedules are most frequently used when the employer wants to provide only a small amount of insurance to its employees.
group universal life.
A growing number of group life plans use universal life insurance policies due to their flexibility. The underlying policy contains the same features as individual universal life, but the policy is administered as any group ordinary policy. Characteristic of group universal life plans is employees pay most of the premium. However, they are given certain rights to policy ownership that are not found in ordinary group life plans.
Multiple Employer Trusts and Multiple Employer Welfare Arrangements
A method of marketing group benefits to employers who have a small number of employees is the multiple employer trust (MET). METs may provide a single type of insurance (such as health insurance) or a wide range of coverages (life, medical expense, and disability income insurance). In some cases, alternative forms of the same coverage are available (such as comprehensive health insurance or basic health insurance). An employer who wants to get coverage for employees from a MET, must first become a member of the trust by subscribing to it. The employer is issued a joinder agreement, which spells out the relationship between the trust and the employer and specifies the coverages to which the employer has subscribed. It is not necessary for an employer to subscribe to all the coverages offered by an MET.A MET may provide benefits on a self-funded basis, or through a contract purchased from an insurance company. In the latter case, the trust, not the subscribing employers, is the master insurance contract holder. In either case, the employees of subscribing employers are provided with a benefit description (certificates of insurance) in a manner similar to the usual group insurance agreement. In addition to alternative methods of funding benefits, METs can be categorized according to way in which they are administered. That is, by an insurance company or a third-party administrator.A multiple employer welfare arrangement (MEWA) is a type of MET for union employees that is self-funded and has a tax-exempt status. Employees covered under an MEWA are required by law to have an employment-related common bond.
Employment position:
An employment position schedule sets the amount of life insurance according to an employee's position with the company. For example, general staff employees may be provided with $30,000 of life insurance, managers with $50,000, account supervisors with $75,000, and vice presidents with $100,000.
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.
Low Cost
Another characteristic of group insurance is that, per unit of benefits, it is available at lower rates than individual insurance. The primary reason for its reduced cost is lower administrative, operational, and selling expenses associated with servicing one contract (the group contract) as opposed to several individual contracts. Additionally, most employers pay all or part of the group premium, so members can have insurance coverage for far less than what they would normally pay for an individual or personal plan.
Blanket Health Policies
are issued to cover a group who may be exposed to the same risks, but the composition of the group (the individuals within the group) are constantly changing. A blanket health plan may be issued to an airline or a bus company to cover its passengers or to a school to cover its students. No certificates of coverage are issued in a blanket health plan, as compared to group insurance.
Group Term Life
Most group life plans are term plans, which use annual renewable term (ART) insurance for the underlying policy. This gives the insurer the right to increase the premium each year (based on the group's experience rating), and it gives the policyholder the right to renew coverage each year. As is characteristic of ART policies, coverage can be renewed without evidence of insurability. The prevalent use of ART insurance is another reason why the cost of group insurance is fairly low.
Determining eligibility (group insurance)
Must benefit at least 70% of all employees. At least 85% of all participating employees must not be key employees.
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.
Certificate of insurance
is a document issued by an insurance company/broker that is used to verify the existence of insurance coverage under specific conditions granted to listed individuals. With group insurance, the group (typically employer) is the policy owner and maintains a master policy. The insureds (typically employees) receive a certificate of insurance in lieu of a policy.
Contributory
is a group insurance plan issued to an employer under which both the employer and employees contribute to the cost of the plan. Generally, 75% of the eligible employees must be insured in most states.
Franchise Insurance
is a life or health insurance plan for covering groups of persons with individual policies uniform in provisions, although perhaps different in benefits. Solicitation usually takes place in an employer's business with the employer's consent. Generally written for groups too small to qualify for regular group coverage. May be called wholesale insurance when the policy is lifeinsurance.
Noncontributory
is an employee benefit plan under which the employer bears the full cost of the employees' benefits; in most states, the plan must insure 100% of eligible employees.
Group ordinary insurance
is any type of group life plan that uses cash value life insurance. In some cases, employees are allowed to own the cash value portion of the policy if they contribute to the plan. In other cases, an employee's termination results in the forfeiture of the cash value, which is then used to help fund the plan for the remaining employees.
A Master policy
is issued to the employer under a group plan; contains all the insuring clauses defining employee benefits. Individual employees participating in the group plan receive individual certificates that outline highlights of the coverage.
Flow of Insureds
Finally, group insurance is distinguished by a flow of insureds, entering and exiting under the policy as they join and leave the group. In fact, to operate effectively group insurance requires a constant influx of new members into the group to replace those who leave and to keep the age and health of the group stable.Which kinds of groups are eligible for group insurance coverage? Generally, almost any kind of natural group, those formed for a purpose other than to obtain insurance, will be considered by an insurer. Insurable groups most typically fall into one of the following categories:• Single-employer groups• Multiple-employer groups• Labor unions• Trade associations• Creditor/debtor groups• Fraternal organizations
Group Credit Life Insurance
Group credit life insurance is another form of group insurance. A type of decreasing term insurance, it is issued by insurance companies to creditors to cover the lives of debtors in the amounts of their respective loans. Typically, it is provided through commercial banks, savings and loan associations, finance companies, credit unions, and retailers.
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.
Premiums for group life insurance:
If paid by the employee are not tax-deductible. However, if the employer pays, it can deduct the premiums it pays as a business expense. The IRS requires the cost of employer-provided group life insurance above $50,000 to be taxable as income to the employee. Proceeds from a group life policy are tax-free if taken in a lump-sum. Proceeds taken in installments will be subject to taxes on the interest portion of the installments.
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.
group paid-up
a combination of term and whole life insurance is used. Usually the employer pays for the term portion of the plan and employee contributions are used to purchase units of single-premium whole life. The sum of the employees' paid-up insurance and the employer-paid term insurance (usually decreasing term to offset the annually increasing amount of paid-up insurance) equals the amount of life insurance employees are entitled to under the plan. Upon retirement or termination, employees acquire 100% ownership of their paid-up policies.
Conversion Privilege
allows a policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue). Conversion is a common privilege for term life insurance and all group insurance. The insured does not have to prove insurability (good health) when converting a policy.
Credit Policies
are designed to help the insured pay off a loan in the event they are disabled due to an accident or sickness or in the event they die. If the insured becomes disabled, the policy provides for monthly benefit payments equal to the monthly loan payments due. If the insured dies, the policy will pay a lump sum to the creditor to pay off the loan. Credit policies typically cannot exceed the amount of the loan as that is the only amount the creditor has insurable interest in.