Chapter 5

Front 1

Ordinary (Individual)

Back 1

- individuals with proof of insurability
- underwriter consider age, sex, weight, health, and tobacco
- grace period is at least 30 days for all forms of insurance

Front 2

Franchise

Back 2

- group insurance without a Master Policy
- underwriting is on an individual basis and individual policies are issued
- employer may pay premium or split the premium with the employee
- minimum grace period of 30 days
- employer responsible for plan administration which makes the plan less expensive than individual policies
- insurer requires a minimum number of participants
- group must be together for reasons other than lower premium payments

Front 3

Group (markets)

Back 3

- employer holds the master policy
- employee receives a certificate of insurance
- evidence of insurabiliy not normally required
- employer pays premiums
- cost is based on group size, average age, and industrial classification, employer financial status, group claims, employee turnover
- grace period of at least 31 days
- biggest concern is adverse selection
- There is a conversion period of 31 days in which the employee may, upon
termination of eligibility and without evidence of insurability, convert his/her group
policy to an individual permanent policy. The premium will be at a higher than normal
rate to include the insurer’s guaranteed convertible surcharge. The majority of all
conversions are on persons that would otherwise be uninsurable.
- renewable term basis with no cash value
- Continuation after retirement is accomplished by the Retired Lives Reserves (RLR)
system. The employer pays an equal premium amount each month while the employee
is active to pay for a reduced retirement benefit. Continuation due to disability may be
accomplished if the disability occurred while covered under the group and the claim is
filed within 12 months of the disability.

Front 4

Single Employer (Group Sponsor)

Back 4

1. two types of employee groups
- contributory - at 75% must participate and employee contributes
- noncontributory - employer pays all premiums with a 100% mandatory participation; reduces adverse selection
2. for full time employees only
3. If the employee does not enroll when first eligible, or waits until the eligibility period
closes, the insurer may require proof of insurability to reduce “adverse selection.”
Typically, the employer will have an open enrollment at each plan anniversary.

Front 5

Labor Union (Group Sponsor)

Back 5

a. The plan must be for the benefit of someone other than the union.
b. The Taft-Hartley Act prohibits employers from turning over funds directly to a
union. A separate fund must be set up and trustees appointed to manage the fund.
c. Some plans may provide for payment of the insurance to come from both the
above mentioned fund and the union itself.

Front 6

Multiple-Employer Trusts (METs) (Group Sponsor)

Back 6

a. METs may be sponsored by insurers, independent administrators or two or more
employers of the same industry.
b. The sponsor must design the plan and select those groups (or other employers)
permitted to participate with the sponsor. The sponsor usually becomes the plan
administrator.
c. Each MET must have a trustee (often a bank trust department) with all financial
transactions routed through the trustee.
d. The entire group (Trust) is experience rated permitting greater credibility for all
group members.
e. MET members do not have to purchase all the benefits offered by an
administrators’ trust.
f. The majority of METs are self-insured and seldom name an insurer as the
trust administrator. However, if the MET is insured, the trust may then be
administered by the sponsoring insurer

Front 7

Credit Life Insurance (Individual and Group)

Back 7

1. Credit Life insurance is either a form of individual coverage on the life of a debtor or
group insurance issued to a creditor providing coverage for debtors. Both types of plans
are normally a form of Decreasing Term and the amount of insurance reduces as the
amount of obligation reduces. Level term may be used.
2. Usually the individual debtor pays the premium. A few dollars of a monthly payment
are credited toward premiums for the insurance and the debtor is entitled to cancel the
insurance if and when the loan is prepaid or refinanced.
a. The amount of insurance benefit shall not exceed the total amount of indebtedness.
b. The coverage begins when the debtor becomes obligated to the creditor.
c. The creditor must apply the insurance proceeds to discharge the loan.
d. The creditor is normally both policyowner and beneficiary.
e. The term of coverage is generally month-to-month covering the installment payments.

Front 8

Industrial (Home Service)

Back 8

1. Individual policies are issued to low–income workers without a medical examination
requirement. The premiums are collected weekly or monthly by the insurance agent
servicing that particular area or paid directly to the insurer.
2. Industrial policies normally have a face amount of $1,000 or less and written to reduce
funeral costs.
3. These policies are marketed house–to–house by a Debit agent, also known as a Home
Service agent.
4. The grace period is four weeks in length with the method of settlement upon death being
lump sum.
5. Facility of Payment Clause – the company may pay to a relative or anyone it deems
entitled to the benefits in the absence of a designated beneficiary.

Front 9

Social Security Legislative Acts

Back 9

1. 1935 – An old-age retirement benefit was given to this nation. In 1939, this system expanded
to provide protection for the worker’s family (Old Age, Survivors Insurance - OASI).
2. 1956 – Disability income benefits were added (Old Age, Survivors, Disability Insurance
- OASDI).
3. 1965 – Title XVIII (also known as Medicare) was added changing the name of the
program to the Old Age, Survivors, Disability and Health Insurance (OASDHI).
4. With a few exceptions, it is a compulsory program.

Front 10

Social Security Funding

Back 10

1. Funding is provided by both employee and employer through the Federal Insurance
Contributions Act (FICA) tax.
2. The employer withholds the employee’s tax and pays it along with the employer’s
portion.
3. Self-employed individuals pay an amount equal to the total of an employer and
employee payment.
4. These funds are collected, kept in a trust fund, and invested in government securities.
This fund is managed by two public trustees and the Secretaries of the Treasury, Labor,
and Health and Human Services.
5. The actuarial value of contributions are not related to the actuarial value of benefits.
6. It is not fully funded and provides only a minimal base of income.

Front 11

Social Security - Fully Insured

Back 11

1. Fully Insured – an individual may attain fully insured status if he/she has been credited
with 40 quarters of covered employment since 1936. If the insured has attained age 21
after 1950, he/she is considered fully insured if that individual has acquired a minimum
of six quarters of covered employment with one quarter for each year over age 21.
Benefits that may be received monthly under a fully insured status are benefits for:
a. Retirement at age 62 or older.
b. Spousal retirement at age 62 or older.
c. A dependent child of retired worker.
d. A spouse of retired worker at any age if caring for a dependent child.
e. A widow or widower at age 60, or at age 50 if disabled.
f. A dependent parent of a deceased worker.

Front 12

Social Security - Currently Insured

Back 12

a worker must be covered at least six quarters during the full 13-
quarter period ending with the quarter in which he/she: dies, becomes disabled, or is entitled
to retirement benefits. The only benefits available at death when only currently insured are the
child’s benefit, the mother’s or the father’s benefit, and the lump sum death benefit of $255.
The survivor’s benefit is computed using the deceased’s Primary Insurance Amount (PIA).

Front 13

Types of Social Security Benefits

Back 13

1. Retirement – pays benefits to workers (age 65 or reduced benefits at age 62) and their
dependents.
2. Death/Survivor – pays benefits to the family of a covered worker (see next page).
3. Disability income – pays benefits to a covered worker and dependents (see Chapter
11).
4. Medicare – helps cover health insurance costs for qualifying individuals (see Chapter 13)

Front 14

Social Security Survivor Benefits

Back 14

1. The Survivor Benefit is the amount of income that may be expected from the Primary
Insurance Amount (PIA) of the insured. This benefit is calculated on the amount of current
Social Security Insurance income benefit the deceased had earned which is the PIA.
2. Children are covered to age 18 and may continue coverage to age 19 if enrolled in an
accredited elementary or secondary school.
3. If the remaining biological parent should remarry after the deceased parent’s death or was
divorced from the biological parent and remarried, the child is still entitled to the benefit.
4. If the child has been adopted by a stepparent the child remains eligible for the survivors benefit.
5. When the youngest child reaches age 16, the widow’s/widower’s blackout period
begins and continues until the surviving (non-remarried) spouse reaches age 60. At this
time the widow or widower may receive a Social Security income benefit as per the
calculations using the PIA of the deceased spouse.
N Note: A one time benefit of $255 is paid to a surviving spouse or child if eligible
for Social Security benefits. When the surviving spouse dies and the first spouse to die
was not qualified for the death benefit, it is possible the family will not receive any death
benefit from the Social Security.