Group Life Insurance

Group life insurance is most commonly associated with employers. Other common applicants for group life insurance include:

• Multiple Employer Trusts (METs)
• Labor Unions
• Creditors

Any group can apply for insurance, but the insurance must be incidental to the group. A group of individuals cannot be formed for the express purpose of obtaining group life insurance; they must be associated for some other reason. This does not mean that groups of employers cannot band together to obtain a better deal on a group life insurance plan. In fact, this is quite common. Multiple Employer Trusts (METs) are groups of small employers from a common industry that join together to form a larger group in attempts to be more attractive as a group to the insurer.

Under HIPAA, any insurer in the business of writing group health insurance must make the product available to small employer groups (2 to 50 employees) without regard to health status.

A distinguishing feature of group life insurance is that one policy is issued that covers multiple lives. The policy is issued to the employer or other authority. It is that single authority who is the policy owner. Each participant in the group plan is issued a certificate, which serves as evidence of coverage. Anyone covered under a group life policy may assign their benefits and designate their beneficiary.

Another notable difference between group and individual insurance is the underwriting process. Insurance company underwriters examine personal characteristics of every applicant for an individual policy. That is not done with most group insurance applications, unless it is a very small group.

The factors that go into the underwriting process are the type of group, the nature of its business, its physical location, the size of the group, and the average age of the group’s members. No evidence of insurability or medical exams are required of any of the group’s members. However, group rates are based to some extent on past claims history (experience rating) of the group.

A group life policy is a cancellable policy, meaning that either the employer or the insurer may cancel the policy. The employer may cancel at any time as long as the insurer is given a 31-day notice and the employer notifies its employees. The insurer may cancel at any anniversary date.

To combat adverse selection, insurers use participation percentages. If the plan is non-contributory, meaning that the employer pays the premium, 100% of the eligible employees must participate in the plan. If the plan requires employee contributions (contributory), the required participation is 75%.

Employers are free to switch insurance carriers for their group coverage or terminate coverage altogether. There are statutory rules that regulate the terms and conditions that must be followed when this occurs, including:

• The employees must be notified that the policy is being discontinued.
• All group policies must provide for an extension of benefits. The policy must clearly explain the terms of this right. The usual continuation period is 31 days.
• If a policy is discontinued, benefits must automatically be extended for disabled employees.
• When one insurer replaces another, the prior carrier is liable for all claims incurred during any extension periods. Also, the new carrier must cover all employees who were eligible to participate under the prior carrier. The new carrier must disregard any pre-existing conditions that would otherwise make a participant uninsurable.

Most group life policies include a conversion privilege, which allows members of the group to convert their coverage to an individual insurance policy for 31 days after leaving a group plan due to a qualifying event. The value of this provision is that evidence of insurability is not required. This can be very important to a person who has health problems or pre-existing conditions when he/she has a qualifying event. The individual policy must be permanent insurance and must be issued by the same carrier.

Lesson Summary

Group life insurance is commonly associated with employers, but other entities like Multiple Employer Trusts, labor unions, and creditors can also apply for group life insurance, provided that the insurance is incidental to the group.

• Group life insurance involves issuing a single policy that covers multiple people, with the employer or another authority being the policy owner, and each participant is given a certificate as evidence of coverage.
• Participants in a group plan can assign benefits and designate beneficiaries, with no need for medical exams or evidence of insurability for the group members.
• Group rates are based partially on the group’s past claims history, and insurers may cancel the policy at any time with a 31-day notice from the employer or on any anniversary date.
• To prevent adverse selection, participation percentages are enforced, requiring 100% participation for non-contributory plans and 75% for contributory plans.

There are statutory rules for termination or switching of insurance carriers, including employee notification, extension of benefits, and automatic extension of benefits for disabled employees.

• Most group life policies offer a conversion privilege that allows group members to convert coverage to an individual policy within 31 days of leaving the group due to a qualifying event without requiring evidence of insurability.
• The individual policy must be issued by the same carrier and be permanent insurance, while disregarding pre-existing conditions that would otherwise make a participant uninsurable.

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