Chapter 9. Group Life Insurance, Retirement Plans, and Social Security Disability Program

blanket insurance

a single policy that provides multiple types of coverage.

contest

to dispute or take legal action against something.

earned income

money from salary, wages, or commissions (not investments or unemployment benefits).

irs (internal revenue service)

U.S. government agency that collects taxes and enforces the Internal Revenue Code.

policy endowment

the maturity date of an insurance policy.

vesting

the right to keep all or part of retirement benefits in a plan.

third-party ownership

when the owner of the policy is not the insured; common in business situations or when a parent owns a policy on a minor.

group life insurance eligible sponsors

employers, labor unions, credit unions, debtor groups, associations, and more.

single employer group rule

must cover all eligible employees unless they opt out in writing.

labor union group policy rules

• must cover all members or classes;

• premiums can be union or member-funded;

• must cover all unless they opt out in writing.

association group requirements

must have 100+ members, exist for a reason other than insurance, be active for 2+ years, and meet annually.

credit union group life rules

must insure all members, policy paid by credit union funds, and insurer may exclude for lack of insurability.

debtor group policy rules

• covers all debtors of the creditor;

• premium paid by creditor/debtor/both;

• cannot exceed amount owed.

dependent coverage under group plan

includes spouse and children to age 26; disabled children may be covered longer with proof.

domestic partnership coverage

must be equal to spousal coverage; requires valid Declaration of Domestic Partnership.

blanket insurance

covers groups exposed to the same hazard; no named insureds or certificates; coverage is temporary.

entities allowed blanket insurance

includes publications, charities, employers, schools, and entertainment companies.

blanket policy term limit

cannot exceed one year, but can be renewed.

opt-out limit for blanket insurance

if 10%+ of eligible persons opt out, contract is void or can’t be renewed.

conversion privilege

right to convert group policy to individual policy within 31 days after leaving group—no proof of insurability needed.

extension if no notice of conversion

employee gets extra 25 days to apply after being notified late (after 15 days).

max conversion period

employee has no more than 60 days to convert coverage and pay first premium.

dependent conversion rights

spouses/children can convert group coverage to individual plans without proving insurability.

incontestability clause

insurer cannot contest policy after 2 years (in CA), even if there were mistakes.

misstatement of age

policy must adjust premium or benefits fairly if age is wrong.

war/military/aviation risk

insurer may exclude or reduce liability for losses from these risks.

qualified retirement plan

IRS-approved employer-sponsored plan offering tax-deductible contributions and tax-deferred growth.

key features of a qualified plan

• benefits employees & their beneficiaries

• formally written & communicated

• nondiscriminatory (no favoring officers or highly paid)

• permanent

• IRS-approved

• includes vesting requirement

tax benefit of qualified plans

qualified plans offer tax advantages.

life insurance in qualified plans

allowed only under limited circumstances, usually in profit-sharing, defined contribution, or defined benefit plans.

oasdi (social security)

federal program that provides retirement, disability, and survivor benefits to eligible workers and dependents.

quarter of coverage (qc)

unit used to measure Social Security coverage; max 4 credits per year.

fully insured status

earned 40 quarters (10 years) of coverage; qualifies for retirement, Medicare Part A, and survivor benefits.

currently insured

earned 6 credits in the past 13 quarters before death, disability, or retirement benefit eligibility.

disability benefit qualification (general)

generally need 40 credits, with 20 in the last 10 years before disability.

disability benefit rules by age

• Under 24: need 6 credits in past 3 years

• Ages 24–31: credits = half the time between 21 and disability

• Over 31: at least 20 credits in past 10 years

retirement benefit

paid at age 66–67 if fully insured; monthly benefit to retiree + dependents based on PIA.

disability benefit

paid to disabled worker & dependents after 5-month waiting period if fully insured.

survivor benefit

paid after worker’s death (if fully or currently insured); includes lump-sum burial and monthly income to survivors.

who can receive survivor benefits

• spouse (age 60+ or full retirement)

• parent of minor or disabled child

• dependent parents (62+)

• unmarried children (under 18, or 19 if full-time student)

blackout period

time between child turning 16 and spouse reaching 60, when no benefits are paid to the surviving parent.

how social security is funded

through payroll taxes on earned income; shared by employee & employer under FICA.