Chapter 6 Insurance
The policy face page stipulates all provisions:
Age limits, Notice of claim and Conversion.
The certificate's face page includes:
The coverage effective date, Any dependents covered, and The policy face amount.
when underwriting for groups:
*Groups are underwritten as a whole, not based on individual members within the group. *Groups are selected and rated based on the group's average age, proportion of men to women, and occupation. *Insureds under a group policy are typically classified according to their employment (e.g., full-time, part-time, seasonal, salaried, etc.) By classifying employees, the employer decides which class of employees is eligible for coverage.
Taxation of Group Life Plans:
*Premiums for group life insurance paid by the employee are not tax-deductible, but the employer can deduct premiums it pays as a business expense. *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.
MEWAs:
*Put premiums into a trust, and claims were paid from those premiums *Were not fully covered by an insurance policy *Frequently could not pay their claims and ran into financial trouble *Were essentially operating as unlicensed and unregulated insurers *Are now regulated under state and federal laws with guidelines as to minimum assets required to be held to meet claims needs
conversion period is:
31 days after termination from group coverage with a maximum of 60 days. *conversion option must be exercised during the conversion period, and the individual is covered under the group policy throughout the conversion period.
Minimum Premium:
An agreement is made between the policyowner and the insurer in which the policyowner pays the minimum amount of the premium for anticipated claims, and the insurer pays the excess.
master policy is issued to the MET's trustees if at least one of the following conditions are met:
At least two employers in identical or similar fields establish the trust, or One or more labor unions or associations establish the fund. This arrangement is called a Taft-Hartley trust or negotiated trusteeship and this solves the problems of labor unions providing group insurance mentioned earlier.
Nonprofit organizations include:
Charities, Foundations, and Religious organizations
Servicemembers' Group Life Insurance (SGLI) offers inexpensive group term life insurance for members of the armed forces.
Coverage is offered in $50,000 amounts up to a maximum of $400,000. Servicemembers have the option of converting their term protection to permanent protection. The cost of coverage is not based on age, and premiums are 65 cents for each $1,000 of coverage.
The policyowner in group insurance is the:
Employer, Association, Labor union, Trusteeship, or Any type of eligible group.
government insurance include:
Federal Employees' Group Insurance, Servicemembers' Group Life Insurance (SGLI), Social Security and Unemployment Insurance.
Which of the following classifications of employees is not used for the purpose of determining group insurance eligibility?
Full-time or part-time/seasonal Salaried or hourly Union or non-union *Age or gender
types of group whole life insurance used most often include:
Group ordinary, Group paid-up, and Group universal life
Probationary period
Individuals who join a group must undergo a waiting period prior to being eligible for coverage under the group plan. Usually 90 days
Group insurance, as compared to individual insurance policies, has the following distinctions:
More people are covered by a group plan through their employer than by an individual insurance plan. It is typically easier to qualify for a group plan than an individual plan. The unit cost for group insurance is generally less than for a comparable individual plan.
Administrative Services Only (ASO):
This option applies specifically to health insurance - a group policy is self-funded, and an insurer is subcontracted to process claims.
Association groups include;
alumni associations and professional associations.
Employer groups;
are the most common groups to obtain group insurance coverage.
noncontributory plans:
the employer pays the entire cost of premiums and must have 100% participation.
If an employer discontinues premium payments,
the group life policy will be terminated.
contributory plan:
the group members share the cost of the coverage with the employer and must have at least 75% participation.
multiple employer trust (MET) is
when several employers or labor unions form a trust fund to reduce the tax effects of providing employee benefits, especially life insurance.
Franchise Group Insurance:
Covers members in a common group. A group entity sponsors a plan in which members pay premiums to the insurance company. Each Insured Receives An Individual Policy
Retrospective Premium:
The insurer collects a base premium amount, but is entitled to collect additional premium amounts based on the actual loss experience.
What is the term for the period when an individual is eligible for coverage under a contributory plan and may enroll in the group plan?
eligibility period
Contributory plans require
eligible individuals to satisfy the probationary period and enroll in the group plan during the eligibility period, spanning a period of 30 or 31 days.
group universal life:
employees pay the majority of policy premiums and, therefore, have specific rights of ownership that are not provided in-group ordinary insurance.
Group life is differentiated from individual life in that;
enrollees typically do not have to provide evidence of insurability, are not issued individual policies, and do not own the contract.
Group insurance plans for non-employer groups in which the insured pays all the premiums are called:
fully contributory plans
Experience Rating -
group premiums established on the group's prior claims history. Experience rating more accurately rates the group; however, groups with more claims will inevitably pay higher premiums.
when underwriting for individual policies:
insureds are classified according to their individual risk classification: *Preferred, *Standard, *Substandard, *Declined.
In employer-sponsored group insurance, the employer is the _______________, and the employee is the _______________.
Policyowner; insured
Under a group policy, if a member's coverage is terminated, the member and their dependents may convert their group coverage to individual whole life coverage and;
*Evidence of insurability cannot be required upon conversion. *The individual whole life premiums will be determined based upon the insured's attained age, and the face amount will be the same as was provided under the group policy. *The premium is likely to be higher.
standard provisions are based on the NAIC Model for group life insurance and most group insurance have the following:
*Grace period of 31 days *2-year contestability period from the date the insured's coverage took effect *The entire contract consists of the policy and attached application *Individual employees or members are issued certificates of coverage under the master contract *Misstatement of age provision *Evidence of insurability must be provided if an eligible individual for coverage enrolls after the enrollment period *Conversion right *Insureds' statements in application are representations *Facility of payment
All group life coverages must meet the following in most states:
*Group life master contracts must cover at least 10 individuals. In some states, this minimum is lower; *The group life contract must be established by an eligible group, such as an employer or an association; *The group life coverage must be established for the benefit of the insured individuals; *Individuals applying for coverage do not have to undergo a medical examination; *Premium rates are based on the claims experience of the entire group, not each individual, and the master contract holder must pay for at least a portion of the premiums, but is permitted to pay the entire cost of premiums.
Group credit life insurance is intended to cover the life of a debtor in the event the debtor dies prior to paying off a debt.
*The creditor owns the credit life insurance policy and is the beneficiary. *The debtor is the insured individual with the debt who pays the premiums and receives a certificate of coverage from the creditor. *Credit life insurance pays the amount of the outstanding debt. *Credit life policies usually are issued for a period of 10 years or less. *Once the debt is paid off, the debtor's coverage terminates. *Credit life policies do not have conversion rights. Group credit policies must maintain a minimum number of insureds at all times, typically 100 people. *In addition, there is a limit on the amount of insurance per debtor.
Federal Employees' Group Life Insurance (FEGLI) offers group term life insurance for:
Federal employees, Federal retirees, and Their family members. Premiums are automatically deducted from the insured's paychecks. Federal employees pay 2/3 of the cost of premiums, and the government pays 1/3 of the cost. Three additional coverages are offered as a supplement to the Basic, which are optional.
To qualify as an association group:
Organized into a group naturally (for purposes other than simply to acquire insurance coverage) An active association for at least two years Have a constitution and bylaws Hold regular meetings at least annually Have at least 100 members
labor union must meet these requirements to qualify as a group;
Organized into a group naturally (for purposes other than simply to acquire insurance coverage) Possess a constitution and bylaws Group coverage is intended for the benefit of members, not the labor union
Most group life policies (except group credit life) allow the insured's dependents to be covered under the group plan this includes:
Spouse, Children (including natural, step, foster and adopted) under the dependent age limit, Dependent parents, and Other individuals who are dependent on the insured.
Most labor unions do not provide group insurance due to the;
Taft-Hartley Act, which forbids employers from directing money into the union for the sole intent of providing labor union members with insurance.
Applications are brief and include:
The applicant's name, Social security number, Residential address, Any dependents, and Named beneficiaries.
All of the following are true regarding group life insurance contracts, EXCEPT:
They have a grace period. Members have the right to convert their policy. The application may be attached to the policy. *Evidence of insurability is never required for enrollment.
Shared-funding:
This funding agreement is specific to health insurance. It allows the policyowner to self-fund its medical expenses; but after a specified amount, the insurer will cover the remaining costs.
Group life insurance is most commonly offered as:
annual renewable term. The policy is issued for one year and may be renewed annually without evidence of insurability at the discretion of the policyowner.
group ordinary plan is;
any group life plan that builds cash value. The employer pays for the insurance portion of the policy in a group permanent plan. In most policies, the employee owns the cash value.
Group paid-up;
combines term and whole life. The employer pays the term insurance. The employee purchases single-premium whole life. the term + whole = policies face amount.
Noncontributory group plans must
cover all eligible individuals, 100%, immediately after the probationary period expires.
If the master policy is terminated,
each individual member who has been insured under the group contract for at least five years is permitted to convert the group coverage to individual whole life coverage. The converted coverage will have a face value at least equivalent to that provided under the group policy, less the amount of any new coverage purchased during the conversion period, or $10,000, whichever is less.
group whole life insurance offers:
permanent protection for insured members under the group.
Community Rating -
premiums are based on the actual or projected costs of insureds in a particular geographic location with reference to insureds' age, gender, occupation, and health. With community rating, each member pays the same premium.
Adverse selection is reduced in group because
the group occurs naturally and member turnover is favorable since younger people pose less of a risk than older people.
Persistency is
the group's ability to pay premiums and renew coverage which impacts policy issuance.
open enrollment period is
the period of time new members may enroll in group coverage each year, and when members can change their coverage. New members that miss the open enrollment period may either be required to show evidence of insurability or wait until the following year's open enrollment period to enroll.
