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36 Cards in this Set
- Front
- Back
Characteristics of Group Insurance
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• Group insurance provides coverage to many
people under one policy • Individuals must be first members of a group before they become eligible to purchase the insurance • The group sponsor, or master policyowner, holds the insurance policy |
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Group members receive a certificate of
insurance that certifies |
– The coverage
– The benefits under the policy – The name of the covered individual or individuals – The name of the beneficiary if applicable |
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Types of Eligible Groups
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-Generally almost any kind of natural group
formed for a purpose other than to obtain insurance will be considered by an insurer • Insurance groups most typically fall into one of the following categories |
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Single-Employer Groups
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• Employer is the policyowner
• Employer establishes the eligible class of employees covered – Classification will usually include all full-time employees – Can also specify further (i.e. full-time, salaried, nonunion employees) – By classifying in this manner, employer is able to legally exclude certain groups of employees (i.e. part time and union) |
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Multiple Employer Group (METs)
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• Several employers form a trust fund to combine
their workers for life insurance eligibility • Policy may be issued to the trustees of a trust group if the fund has been established by – Two or more employers in the same or related field – One or more labor unions or associations (known as a Taft-Hartley trust) • Trustees are the policyholders • Plan must not be for the benefit of the employer |
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Members of labor organizations or an
association must have certain characteristics to be called a group |
– Have a constitution and bylaws
– Be organized and maintained in good faith for purposes other than obtaining insurance – Have insurance for the purpose of covering members, employees, or the employees of members for the benefit of persons other than the association, its officers, or its trustees |
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Creditor and Debtor Groups
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• Written to provide payment of the insured’s debt
when he dies prematurely or is disabled as a result of accident or sickness • Creditor is the policyowner • Debtor is the insured • Benefits under the credit insurance are not permitted to exceed the amount of the indebtedness |
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Premiums
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• Group insurance policies often able to provide
coverage at a lower premium than individual policies can • One reason is the administrative costs involved – Less expensive to cover a group of 50 people versus writing 50 separate policies • Group premiums are based on the experience of the group as a whole |
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The underwriter focuses on the group as a
whole, rather than individual members |
– All eligible participants obtain coverage
– Group insurance involves experience rating, not the health, habits, or characteristics of individual members • A method of establishing a premium for the group based on the group’s previous claims experience • The larger and more homogeneous the group, the closer it comes to reflecting standard mortality and morbidity rates |
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Based on the group’s risk profile, which is
measured against the insurer’s selection standards, the group is either accepted or rejected |
– Most commonly done on two occasions
• When a group first is taken on by an insurer • When a group member tries to enter the plan after initially electing not to participate |
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Reason for the group’s existence
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– Purchasing group insurance must be incidental to the
group’s formation, not the reason for it |
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The stability of the group
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– Underwriters want to see a group of stable workers
without an excessive amount of turnover |
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The persistency of the group
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– Groups that change insurers every year do not
represent a good risk |
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The method of determining benefits
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– It must be by a schedule or method that prevents
individual selection or benefits |
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How eligibility is determined
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– Underwriters like to see, for example
• Sickness related probationary period |
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The source of premium payments from
individual participation |
– Contributory – paid jointly, employees share a portion
of the premium • Contributory plans require 75% participation by eligible members – Noncontributory – employer pays 100% of premium • Preferred type of risk as it helps spread the risk and reduces adverse selection • Almost all noncontributory plans require 100% participation by eligible members |
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Underwriting Considerations
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The prior claims experience of the group
• The size and composition of the group • The industry or business with which the group is associated – Hazardous industries are typified by higher-thanstandard mortality and morbidity rates |
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Adverse Selection
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• The tendency for poor risks to seek and be
covered for insurance more often than average risks • Underwriting process occurs to protect insurers from adverse selection |
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Adverse Underwriting Decisions
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• A risk will be rejected when the insurer believes
the applicant cannot be profitable at a reasonable premium or with reasonable coverage modifications – If rejected on basis of information on an investigative report, applicant must be notified and given name and address of reporting company • In health insurance, when renewal is denied the insured must be given written explanation or be notified that explanation available upon request |
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Probationary Period
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• The specified period after beginning a job that
an individual must wait before becoming eligible for group coverage • 90 day period common, but can be longer or shorter • Helps control costs for the employer |
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Eligibility Period pt 1
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• If plan is noncontributory, all individuals become
covered immediately after the probationary period • If plan is contributory, the employees must first fulfill the probationary period and then must enroll within the eligibility period to avoid medical underwriting – Eligibility period typically is for 30 or 31 days after the probationary period expires |
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Eligibility Period pt. 2
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If plan is contributory (continued)
– If group member does not apply during this period, the member is generally required to prove insurability before being eligible for coverage • Could involve some type of medical/physical exam – If an individual does not enroll during the eligibility period but wants to enroll later, the individual will generally be required to prove insurability and will be selected on an individual basis • Could involve some type of medical/physical exam |
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Statutory Requirements
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Nondiscriminatory classifications
– An eligible group must not discriminate in favor of individuals in a manner that increases the opportunity for adverse selection against the insurance company |
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Optional Requirements
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• Employer control
– Employer should be in charge of enrollment, premium payment, benefit selection, and all other areas of administration that are not an insurance company function – Employer’s duty to see that plan administration is conducted in a confidential, legal, and objective manner that precludes the individual insured’s active participation in the business end of the insurance administration |
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Group Size
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• Most insurers require a minimum number of
employees or plan participants before a group health insurance plan may be written • Requirement may vary depending on state laws (see your state law supplement) |
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Predetermined Coverage Amount
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• Underwriter should determine that individual
coverage is based on some plan other than individual selection • Coverage must be uniform for plan participants |
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Enrollment Percentage
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• Underwriter should determine that individual
participation meets the insurer’s guidelines to prevent adverse selection (i.e. noncontributory 100%, contributory 75%) |
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Insurance Incidental to the Group
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Underwriter should determine that the group has
not been formed only for the purpose of purchasing insurance – If group was formed only for the purpose of obtaining insurance, the chance of adverse selection would increase dramatically |
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Eligibility
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Underwriter should first determine that the
business is one that the insurer will cover – In regards to occupations, the higher the risk or instability of the occupation, the higher the premium required – May also take geographic location into account due to death and illness rates differing in different parts of the country |
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Composition of Group
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• Underwriter should determine that the group is
of such nature that there is a reasonably steady flow of new members into the group • Must also be concerned about currently disabled employees or their dependents |
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Composition of Group
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• A new insurer may establish a preexisting
condition provision in the group contract that excludes coverage for any condition that exists before the effective date of coverage – This provision normally will exclude these conditions for a period of 6 or 12 months after the effective date of coverage • Will generally also be a requirement that only employees currently working at least 25 hours per week are eligible for coverage |
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Group Contract and
Certificate of Coverage pt. 1 |
• Basic principle of group insurance is that it
provides insurance coverage for a number of people under a single master contract or master policy |
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Group Contract and
Certificate of Coverage pt. 2 |
• Group insurance typically provided by an
employer for its employees as a benefit – In these cases, employer is the applicant and contract holder – As group members, employees are not parties to the contract – Each eligible employee fills out an enrollment card and is given a certificate of insurance – Certificate summarizes the coverage terms and explains employees’ rights under the contract – List of individual employees covered under the contract is maintained by the insurer |
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Funding of Group Insurance pt. 1
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• Several mechanisms for funding group
insurance have been developed • Alternative funding allows employers to absorb some of the risk and save premium dollars while increasing cash flow – A shared funding arrangement allows employer to self-fund health care expenses up to a certain limit • Employer selects a deductible • Pays covered expenses for any individual incurring claims up to that maximum • At that point, insurer assumes the risk |
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Funding of Group Insurance pt. 2
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• Alternative funding (continued)
– Under a retrospective premium arrangement • Insurer agrees to collect a provisional premium but, based on the actual incurred losses, may at the end of the year – Collect additional premium, or –Make a premium refund |
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Funding of Group Insurance pt. 3
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• Alternative funding (continued)
– A minimum premium plan occurs when the employer agrees to fund expected claims and the insurer funds excess claims • Employer and insurer agree to a trigger beyond which the insurer is liable • A large employer may elect to fully self-fund or may self-fund a plan contract for administrative services only (ASO) |