CFP

Group Life Insurance - Group Life Insurance: Common features



Group coverage has certain basic attributes which are discussed here.

  • Master contract: the group life policy insures a number of people under one contract, typically eliminating the need for individual underwriting and evidence of insurability. The employer is the applicant and policyholder who chooses the insurance as well as the amount and type of coverage for the group's members. It is the employer and the insurer who are parties to the group life insurance contract. In considering a group for coverage, the insurer looks at the group's health as a whole, rather than by each individual. Experience rating sets the group's premium based upon its prior claims experience
  • Flow of insureds: insured members enter and exit the group and coverage. The constant flow of lives keeps replenishing the group as old members leave with the resultant effect of continued stability of the group's age and health.
  • Affordability: group life insurance is less expensive than individual coverage per unit of benefit. The reasons are two.
    • Lower administrative, operational and selling expenses;
    • Frequent employer cost sharing. A plan may be
      • Non-contributory: the employer pays the entire premium.
      • Contributory: the employee is required to pay some portion of the premium.
  • Plan Types
    • Group Term Life Coverage: most group plans offer term life insurance coverage. Annual renewable term is the policy type, allowing the insurer to increase the premium annually based upon the insured group's experience rating. An advantage of annual renewable term is the lack of any required evidence of insurability.
    • Group Permanent Life Coverage: less common is for group plans to offer a form of whole life coverage. The following paragraphs discuss the more common forms of group permanent coverage.
      • Group Ordinary: such plans accumulate cash value which may or may not belong to the employee depending upon the plan rules. Forfeited cash value the employer may use to pay for remaining employees' coverage.
      • Group Paid-Up: such arrangements combine term and whole life coverage as follows. The employer funds the term portion while the employee pays for the whole life piece. The sum of the coverages equates to the total amount of coverage to which employees are entitled. Upon separation from the company pursuant to termination or retirement, the employees own the policy.
      • Universal Life: with this sort of arrangement, the employee pays most of the premium and has greater rights of policy ownership than with an ordinary term policy. The policy has the same features as individual universal life coverage.


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