life and Health Insurance
Abu khaled
chapter201120group20insurance.pptxPrinciples of Group Insurance
Life and Health Insurance FIN 3660
Chapter 11
Group Insurance Contracts
An insurance plan which insures a number of people, such as a group of employees, under a single insurance contract, called a master group insurance contract.
Group Policyholder – the entity or organization that decides what types of group insurance coverage to purchase for the group members, negotiates the terms of the group insurance contract with the insurer, and purchases the group insurance coverage
Group Insureds – the individuals covered by a group insurance policy
Noncontributory Plan – if the insured group members are not required to pay any part of the group insurance premium
Contributory Plan – if the group members must pay a part or all of the premium for their coverage
Formation of the Contract
To form a valid group insurance contract, the group policyholder and the insurer must:
1) Mutually agree to the contract’s terms
2) Both have contractual capacity
3) Exchange legally adequate consideration
4) Form the contract for a lawful purpose
Certificates of Insurance
A certificate of insurance describes:
The coverage that the group insurance contract provides
The group insured’s rights under the contract
Certificate holder – an insured group member
Eligibility Provisions
Actively-at-work Provision – states that in order to be eligible for coverage, an employee must be actively at work – rather than ill or on leave – on the day the insurance coverage is to take effect
Probationary Period – the length of time – typically from one to six months – that a new group member must wait before becoming eligible to enroll in the group insurance plan
Eligibility Period (Enrollment Period) – a specified period of time, usually 31 days, during which a new group member may first enroll for group insurance coverage
Open Enrollment Period – a period of time – typically 30 or 31 days per year – during which eligible people who did not join the group insurance plan at the first opportunity subsequently may join the plan without providing evidence of insurability
Group Insurance Underwriting
Objectives of group insurance underwriting:
To determine whether the proposed group is an acceptable risk
To prevent antiselection
To keep administrative costs involved in providing the insurance coverage as low as possible
To determine the appropriate premium rates to charge for the group insurance
Reason for the Group’s Existence
Groups that are eligible for coverage can be placed into one of the following categories:
Single-employer group consists of the employees of a single employer
Labor Union Group consists of workers who are members of a labor union, which is an association that promotes the welfare, interests, and rights of its members
Multiple-employer Group consists of the employees of (1) two or more employers in the same industry, (2) two or more labor unions, or (3) one or more employers and one or more labor unions
Association group consists of individuals who share a common bond
Debtor-creditor Group consists of persons who have borrowed funds from a lending institution, such as a bank
Continued…
Credit Union Group consists of the members of one or more credit unions, which are cooperative associations that pool the savings of their members and use those funds to make loans to members
Discretionary Group consists of the members of any other type of group that qualifies for group insurance coverage according to applicable insurance laws
Size and Flow of New Members
Generally, the larger the group, the more likely that the group will experience a loss rate that approximates the predicted loss rate
In order to keep the age distribution and expected loss rate to remain stable, underwriters seek a steady flow of young, new members to replace those members who leave the group.
Stability and Benefit Levels
Underwriters avoid issuing coverage to groups that anticipate excessive changes in group membership (example: a group of seasonal or temporary workers generally would not be considered an insurable group)
Benefit Levels – the types and amounts of coverage offered to the group insureds
Benefit schedule – that defines the amount of life insurance the policy provides for each insured
A common method of determining benefit levels is to vary the benefit amount according to specific objective criteria, such as salary, job classification, or length of employment
Group Insurance Premiums
To establish premium rates for group insurance policies, the insurer must determine what costs it will incur (1) in providing the benefits promised by the group insurance policy and (2) in administering the group insurance plan
3 Methods to calculate premium rates:
1) Manual Rating – a method of establishing group insurance premium rates that are based on the experience of a broad class of groups rather than on a particular group’s clams and expense experience
2) Experience Rating – a method of setting group insurance premium rates under which the insurer considers the particular group’s prior claims and expense experience
3) Blended Rating – a method of setting group insurance premium rates under which the insurer uses a combination of manual rating and experience rating
Premium Refunds
At the end of each policy year, a portion of the group insurance premiums paid during the year may be refunded to the group policyholder. These refunds are usually called dividends.
Group Plan Administration
Self-administered Group Plan – a group insurance plan for which the group policyholder is responsible for handling the administrative and record-keeping aspects of the plan
Insurer-administered Group Plan – a group insurance plan for which the insurer is responsible for handling the administrative and recordkeeping aspects of the plan
