Group Life insurance

All of the following can sponsor group life insurance plans EXCEPT:

neighborhoods Insurable groups include single-employer groups, labor unions, and members of associations such as cities and towns. A neighborhood which forms a group to buy insurance would generally not be considered an eligible group

Eligible groups

To qualify for group insurance, a group must be a natural group formed for some reason other than purchasing group insurance. A group of neighbors, friends, or family members would not be allowed to organize themselves simply for the purpose of qualifying for group insurance. Types of Plan Sponsors The following groups are the most common types of eligible group insurance sponsors: employer/employee groups association groups labor union groups multiple employer trusts (METs) multiple employer welfare arrangements (MEWAs)

Master policy and certificate of insurance

With a group life policy, the sponsor of the group is the policyowner and premium payor. The individual members of the group are the insureds. The group sponsor receives a master policy, which indicates the sponsor as policyowner and premium payor. To indicate their coverage under the policy, the insureds are given a certificate of insurance. Each individual insured names his or her beneficiary or beneficiaries.

assignability

Although the group life policyowner is the employer or association, insured employees have certain rights. One of these is the right to name a beneficiary. Another is the right to assign the death benefit. A formal assignment must be made in writing to the insurance company and registered before the assignment is official. Some group policies allow for an absolute assignment and/or an irrevocable beneficiary. If this is the case, then the insurance coverage can be used for a viatical settlement. Viatical settlements are for the benefit of the chronically or terminally ill insured. Their purpose is to gain a sum of money that might be needed to pay medical expenses or to enhance quality of life.

Which of the following types of insurance is typically used for credit life insurance?

decreasing term

Employers

From small businesses to Fortune 500 companies, employers make up the largest segment of group insurance plan sponsors. Employers may either sponsor a group plan themselves or serve as a trustee of a group plan established for the benefit of the employees. Most states impose a minimum size requirement for group insurance plans, with 10 people being the most common minimum. Some states allow smaller employers to sponsor group insurance plans. All employees meeting eligibility requirements must be allowed to participate. Individual discrimination by the employer is prohibited. Minimum Participation Requirement To prevent adverse selection, a majority of employees must be covered under the plan. This is most readily achieved through a minimum participation requirement that varies only by whether the plan is contributory or noncontributory: If the plan is contributory (meaning employees pay a share of the premium), at least 75 percent of eligible employees must elect to participate. If the plan is noncontributory (meaning the employer pays the entire premium), 100 percent of eligible employees must be covered under the plan.

contributory vs noncontributory group plans

Group insurance plans may be funded entirely by the plan sponsor or premiums may be split between the sponsor and the plan participants. If the premium is paid entirely by the employer, the plan is known as a noncontributory plan. If some portion of the premium is paid by the employee, the plan is known as a contributory plan. As a general rule, noncontributory plans must cover all eligible group members. However, because no group member can be required to participate in a plan that requires member contributions, the minimum participation requirement is less (typically 75 percent) for contributory plans. Contributory plans are common with group health insurance plans. Group life insurance plans, however, are typically noncontributory.

group underwriting requirments

Group underwriting focuses on the group as a whole, not on the individual participants. The success of group underwriting relies on a mix of healthy insureds and those who might otherwise be uninsurable. This explains why group plans have minimum participation requirements. The larger the group, the easier it is to predict future losses. However, with small groups, losses are more unpredictable. Group underwriters set requirements to offset the risk of loss based on the group. For example, the underwriter can require a minimum group size; make sure that the group is eligible and is a group the insurer does cover; determine that the required percentage of group members has enrolled for the insurance; confirm that all applications received are complete and accurate; and assign rates based on a perceived higher risk posed by the group as a whole or by a sub-class within the group. The underwriter cannot discriminate against an individual member. In turn, the group cannot exclude one member from coverage based on that person's risk potential. Neither can the group reward one group member with greater benefits.

Labor unions

Labor unions can sponsor group insurance plans for the benefit of their members. Union-sponsored plans are subject to the following restrictions: Either all members of the union or all members of individual classes of the union must be eligible. Class is determined by the individual's membership, by the conditions of employment, or both. Premiums must be paid entirely from union funds or from a combination of union funds and member funds. If premium payment is contributory (some part of the premiums is paid by the employee), then 75 percent of the members must be enrolled. If premium payment is noncontributory (premiums are paid entirely by the union), then 100 percent of the members must be enrolled. A minimum of 10 members must be enrolled when the policy is issued. Coverage During Labor Dispute Group insurance coverage cannot be suspended or terminated if plan participants are involved in a labor dispute with the plan sponsor.

group life standard policy previsions

Like individual life insurance policies, group life policies are characterized in part by certain standard provisions, including a grace period (typically 31 days) for paying the premium after the due date; incontestability after two years except for nonpayment of premiums and fraudulent misstatements on the application; entire contract provision stating that only the application and policy document constitute the policy; a provision setting forth conditions, if any, under which the insurer can require an individual participant to provide evidence of insurability; a provision giving participants the right to designate their beneficiary; and a provision stipulating the right of terminated participants to convert their group life coverage to an individual policy of equal face amount without providing evidence of insurability.

association groups

People who are members of associations, such as independent school districts or cities and towns, can be insured under an association plan. As with employer groups, a minimum of 10 people is typically required for an association to qualify as a group insurance plan sponsor. The association is the policyowner for the benefit of its members and is subject to the following requirements: All members must be eligible. Two or more employers in the same business can form a group to buy insurance for their employees. Premiums can be paid by contributions entirely from the employers, entirely from the employees, or a combination of the two. If a plan is contributory, members are not required to participate but, as with employer groups, at least 75 percent must elect to participate.

Multiple employer trusts MET

Some states allow two or more employers to form a trust to buy group insurance for their employees. Employers in a MET must be in the same industry. Contributions from the employers, employees, or a combination of both are paid into the trust. The trust buys insurance for the benefit of the employees and is the owner of the policy. The group must have a minimum of two employers and 100 employees. For contributory plans, 75 percent of the group must be enrolled. For noncontributory plans, 100 percent of the group must be enrolled

When underwriting group life insurance, the underwriter can offset the risk of loss posed by the group by doing all of the following, EXCEPT

denying insurance coverage to any person with a pre-existing condition.

Barbara is an employee who has group life coverage through her employer. What type of life insurance does she most likely have?

term insurance Typically, group life insurance is provided in the form of annually renewable term insurance. However, permanent insurance can also be used.

credit life insurance

Credit life insurance is designed specifically to cover the life of a borrower in the amount of his or her outstanding loan. If the borrower dies, then the policy pays the policy's death benefit to the creditor. The type of insurance plan used for this purpose is usually decreasing term insurance. The coverage is matched to the declining balance on the loan. And, as the insured's loan balance decreases, so does the coverage. Credit life insurance is offered as group or individual insurance. Typically, the creditor offers group credit life insurance. In this scenario, the creditor is the policyowner and the borrower is the insured. State law (which varies among the states) sets the rules for maximum coverage limits that the creditor can offer borrowers. State law also prevents creditors from forcing borrowers to buy credit life insurance.

conversion priveledge

Group term life insurance coverage normally ends for a participant when that person leaves the group. For someone who is uninsurable this poses a problem, since it would be impossible to purchase an individual policy. Fortunately, group life plans include a conversion privilege that gives participants the right to convert their group life coverage to an individual life insurance policy of equal face amount without providing evidence of insurability. The maximum conversion amount is generally equal to the amount of coverage the person had under the group plan. Conversions typically must be requested within 31 days following termination or retirement from the group. During this 31-day period, group life coverage continues in effect for the terminated employee. If the terminated participant dies within the 31-day conversion period, the group life death benefit is payable. The typical conversion provision only gives the right to buy a life policy other than term insurance. However, a small number of insurers also make term insurance available to terminating employees. When the group plan itself is being terminated, the participants are generally given a far more restrictive conversion right. In such cases, the conversion amount is limited to the lesser of $2,000 or the amount of the participants' coverage at the date of termination.

Group life insurance

Group life insurance covers groups of people, unrelated except for their common association with the group, under a single contract. To qualify for any type of group insurance, the group must be a "natural group" created for some other reason than to obtain group insurance. The most common use of group life insurance is in the business arena. Employers buy group life coverage for the benefit of their employees. Group life insurance is most often provided in the form of annually renewable term insurance (though a form of group permanent life insurance is available). The National Association of Insurance Commissioners (NAIC) model group life insurance bill set the standard for group term life insurance policies. Now followed in the majority of states, these requirements include the following: A group must cover at least ten persons under one master policy. Individual medical examinations are generally not required. The master policy is issued to the employer, trust, or labor union; the participant receives a certificate of insurance. The insurance must be bought for the benefit of the participants. Many states prohibit the employer from being named as beneficiary. Premiums are based on the experience of the entire group, not individuals. Individuals are classified such that they do not choose the benefit levels of the plan. Therefore, the plan is nondiscriminatory. For group life, premium rates are averaged for the entire group. Because people consistently move in and out of the group (new hires coming into the group and retirees leaving it), the premium rates for life insurance are fairly constant. Due primarily to the lower administrative and operational costs, group life insurance is less expensive than individual life insurance for any given death benefit amount. Some states limit the amount of group term life insurance that can be offered. In Texas, for example, the maximum amount of group term life insurance is $250,000, or 700 percent of salary, whichever is greater. Most plans provide coverage amounts linked to the individual's salary in one way or another.

multiple employee welfare arrangements MEWA

Similar to an MET, an MEWA is an arrangement whereby a group of employers join forces (and contributions) to sponsor a group insurance plan. MEWAs are a popular way for small businesses to provide group benefits to their employees. As with multiple employer trusts, some states allow the formation of MEWAs to buy group insurance for their employees. Participating employers must be in the same trade or industry. MEWAs come in two forms: those that are fully insured and those that are self-insured: In a fully insured MEWA, two or more employers, usually from the same business, form an arrangement to buy insurance for the benefit of their employees. The same rules and enrollment requirements apply as for the MET. To be self-insured, the MEWA must get a certificate of authority from the state in which it is formed and must submit reports similar to those required of an insurance company. Self-insured MEWAs must have at least five employers and 200 employees.