CFP

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Group Life Insurance - Other Group Life Arrangements

  • Franchise Life (wholesale) Insurance: covered under this arrangement are employees of a common employer or members of a common association or society. The employer or group is the sponsor rather than the master policyholder. It collects and remits individual premia to the insurer. The insured holds an individual policy which he or she may keep in force through timely premium payments even if his or her relationship with the employer or association ends. The sponsoring organization determines the amount and type of coverage. Small groups whose size is below the minimum required by state law for group coverage are the typical user of such coverage.
  • Group Credit Life Insurance: financial institutions furnish what is a form of decreasing term insurance to cover debtors' lives in the amount of their loans. Commercial banks, savings and loan associations, credit unions, finance companies and retailers are examples of the types of companies that would purchase such coverage. Individual insureds pay the premia and choose which insurer to use. Each borrower may purchase insurance only up to the amount of his or her indebtedness. Creditor companies typically must have at least one hundred debtors per year, though requirements may vary by state law.
  • Blanket Life Insurance: a form of temporary coverage, blanket life insurance covers groups of people exposed to a common hazard. Coverage is automatic for the time during which the individuals in question are participating in the hazards specified in the blanket policy. For example, an airline may own a policy to cover its passengers for the duration of the flight; a sports team may cover its members while they are engaged in team play; a newspaper may offer coverage for its carriers. Individuals do not receive certificates of coverage and are not named in the policy.
  • Multiple Employer Trusts (MET): this sort of arrangement enables small employers to obtain group benefits for their employees. Coverage may be for one or several types of benefits (life, medical, disability) or even alternative forms of the same coverage (comprehensive or basic group health insurance). The employer must subscribe to the trust and receives a joinder agreement evidencing such membership. The employer and trust are the parties to the arrangement, not the individual insureds. Self-funding or a life insurance contract are the two means of providing benefits. If life insurance funds the contract, the trust is the master contract holder. The employees receive a master certificate outlining coverage. METs may use either a third party administrator or life insurance company for plan administration.
  • Multiple Employer Welfare Arrangements (MEWA): this is a type of multiple employer trust for labor unions that self insures and has tax-exempt status.
    • Benefit Determination: the employer determines benefit schedules according to
      • Earnings: coverage could be a flat amount or percentage of earnings (e.g. coverage equal to 1 ½ times one's salary)
      • Employment Position: in this sort of arrangement, the amount of coverage is positively correlated with the employee's status, e.g. staff may receive $40,000 of life insurance, while senior management at the vice president's level may receive $100,000 or more of coverage.
      • Flat Benefit: all employees have the same amount of life insurance coverage, irrespective of compensation or status within the company. Such arrangements are common when the coverage offered is small.
Income Tax Implications of Group Life Insurance

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