Chapter 8: Group Life Insurance Concepts

Blanket Health Policies

Coverage for a changing group (e.g., passengers, students) without individual certificates.

Certificate of Insurance

Proof of coverage issued to individuals under a master group policy.

Contributory Plan

Employer–employee cost–sharing plan; typically ≥75% employee participation.

Non-Contributory Plan

Employer-paid plan; 100% of eligible members must join.

Conversion Privilege

Right to convert group term to a new individual policy without proof of insurability.

Credit Policies

Loan-payoff coverage that pays monthly benefits if disabled or a lump sum to creditor on death.

Franchise Insurance

Uniform individual policies for small groups, sold via employer consent.

Master Policy (Master Contract)

Group policy held by employer; outlines overall coverage terms.

Non-Contributory Plan

Employer pays full premium; must cover 100% of eligible employees.

Persistency

% of policies still active after a set period (e.g., 80% at 3 years, 60% at 5 years).

Group Life Insurance

Single policy covering multiple lives (usually employer–employee), typically annual renewable term.

Annual Renewable Term

Term policy renewed each year without new underwriting, common in group plans.

Policy Owner

Employer holds the master contract and pays all or part of premium.

Certificate Holder

Covered employees receive a certificate/booklet as proof of benefits.

Eligible Groups

Single-employer groups, credit groups, labor unions, multi-employer groups.

Employer Responsibilities

Select coverages, enroll members, maintain records, ensure nondiscrimination.

Underwriting

Group-level criteria only; no individual insurability proofs required.

Policy Type

Always annual renewable term in group plans; individual policies may be term or permanent.

Cost

Group plans have lower administrative costs; employer often subsidizes; individual plans cost more.

Adverse Selection

Risk imbalance when only high-risk join; non-contributory plans prevent it.

Contributory Plan

Employees share premium cost; insurer requires ≥75% of eligible employees.

Eligible Groups

Groups formed for another purpose (e.g., employer, association); insurance incidental.

Eligibility of Group Members

Full-time active employees; 1–6 mo probation; 31-day enrollment; payroll deduction for contributory.

Underwriting Requirements

Group‐level criteria; large groups minimize adverse selection; small groups may need individual screening.

Adverse Selection

High-risk individuals more likely to enroll; mitigated by large numbers of low-risk members.

Proof of Insurability

Health evidence required if outside enrollment window or for small groups.

Physical Impairment Inclusion

All employees covered regardless of any physical impairments.

Policy Persistency

Percentage of in-force policies over time; key to insurer’s stability and group selection.

Classification of Risk

Risk tiers: preferred, standard, substandard, declined.

Conversion Privilege

Option to convert group term to individual permanent policy without health evidence.

Conversion Period

31-day window after termination to convert; group coverage stays active during period.

Policy Termination Conversion

Upon master policy termination, members insured ≥5 years can convert up to group face amount.

Incident of Ownership

Employee (certificate holder) selects beneficiary; employer cannot change it.

Assignment Provision

Written assignment of group life benefits allowed if filed with the insurer.

Group Credit Life Insurance

Decreasing term plan that pays off borrower’s loan on death; premiums based on experience.

Blanket Life Insurance

Coverage for unnamed, changing groups exposed to the same hazard; no certificates issued.

Servicemembers’ Group Life Insurance (SGLI)

Group term coverage up to $400,000 in $50,000 increments for active military.

Family Servicemembers’ Group Life Insurance (FSGLI)

Spouse covered up to lesser of $100,000 or member’s SGLI; children $10,000 free.

Veterans’ Group Life Insurance (VGLI)

Renewable term conversion of SGLI after separation without proving insurability.

Federal Employees’ Group Life Insurance (FEGLI)

Group term life insurance for federal civilian employees.

Employee‐paid Premiums

Premiums paid by employees are not tax-deductible.

Employer‐paid Premiums

Premiums paid by employers are deductible as a business expense (except sole proprietors/partners).

$50,000 Exclusion

First $50,000 of employer-paid group term life is tax-exempt to employees; excess is taxable.

Retired Lives Reserve (RLR)

Annual renewable term plus pre-retirement reserve account; employer-funded (tax-deductible), employee contributions non-deductible.

Qualified Plan Life Insurance Purchase

Plan-document–authorized life coverage incidental to retirement benefits; in DC plans part of account, in DB plans part of defined benefit.

Open Enrollment Period

Designated window (usually 31 days) for new hires to join group plan without health evidence.

Evidence of Insurability

Health proof required only if enrolling outside the open period or for small groups.

Termination Events

Death, disability, or master‐policy termination triggers conversion privilege for insureds.

Group Underwriting Basis

Risk assessed on group’s average age and sex ratio, not individual health status.

Group Underwriting Basis

Uses group demographics (average age, sex ratio) rather than individual health data.

Employer-Paid Premium Deductibility

Employer premiums for employee life coverage are tax-deductible as a business expense.

Business-Beneficiary Premium Non-Deductibility

Premiums on policies where the business is named beneficiary are not tax-deductible.

Key Employee Insurance

Employer-owned coverage on vital staff to fund buy-sell or retention plans; premiums non-deductible.

Stock Redemption/Entity Purchase Agreement

Life policies fund the purchase of an owner’s share on death under a buy-sell agreement.

Split-Dollar Insurance

Formal arrangement splitting premiums and death benefits between employer and employee.

Franchise Life Insurance

Uniform individual policies for small groups sold via employer consent.

Group Credit Life Insurance

Decreasing term plan that pays off outstanding loans on the insured’s death; premiums often paid by insured.

Blanket Life Insurance

Covers unnamed, variable groups against a common hazard without issuing individual certificates.

Group vs. Individual Insurance

Group: two-party, term only, no individual underwriting, cheaper; Individual: one life, any form, evidence required.

Blanket Life Insurance

A ski resort covers every guest injured on the slopes without issuing individual policies or certificates.

Group Credit Life Insurance

When Tom takes a $10,000 auto loan, the bank’s credit‐life plan pays off the remaining balance if he dies.

Franchise Life Insurance

A small café chains all employee coverage so each barista gets a similar individual life policy under one plan.

Key Employee Insurance

A bakery buys a policy on its star baker; if she dies, benefits help hire and train her replacement.

Stock Redemption/Entity Purchase

Two law partners use life policies to fund buying the deceased partner’s share from his estate.

Split-Dollar Insurance

A corporation and an executive split a life policy’s costs and benefits: company pays premiums; exec names beneficiary.

Group vs. Individual Insurance

At Acme Inc., staff get a low-cost group term plan; Jane buys her own permanent policy tailored to her needs.

Assignment Provision

Jane files a written form with HR to assign her group-life certificate to her mortgage lender.

Servicemembers’ Group Life Insurance (SGLI)

Alex, on active duty, automatically has $400,000 coverage until he opts out during sign-up month.

Family Servicemembers’ Group Life Insurance (FSGLI)

Maria, spouse of a sailor, receives $100,000 coverage automatically; their kids get $10,000 each free.

Veterans’ Group Life Insurance (VGLI)

After leaving the Army, Tom converts his SGLI into term coverage without a medical exam.

Federal Employees’ Group Life Insurance (FEGLI)

Linda, a postal worker, sees a FEGLI deduction on her paycheck and knows she’s covered under FEGLI.

Retired Lives Reserve (RLR)

The school district sets aside funds annually so retirees’ term premiums get paid after they stop working.

Qualified Plan Life Insurance Purchase

A 403(b) retirement plan buys a small life policy on participants, but only because the plan allows it.

Certificate of Insurance

Mary opens her onboarding folder and finds a certificate showing she has $200,000 of life coverage under Acme Inc.

Contributory Plan

At TechCo, employees each pay $5/month from their paychecks for $50,000 of group term life insurance.

Non-Contributory Plan

ABC Corp auto-enrolls all staff in a fully employer-paid $100,000 life plan—no payroll deductions required.

Conversion Privilege

When Karen quits, she uses her 31-day window to convert her group term policy into a whole-life policy.

Credit Policies

Mike’s $200,000 mortgage is covered by a credit policy that pays his lender if he dies or can’t work.

Persistency

Insurer records that 90% of RetailCo’s 3-year-old group policies renewed, signaling a stable group relationship.

Master Policy

HR files the one thick contract from InsureCo listing all coverage rules for the entire employee group.

Employer Responsibilities

Each month, HR sends the insurer its census report and premium payment for every enrolled employee.

Classification of Risk

Underwriter tags Group A as “standard” because its average health and age match the insurer’s norms.

Incident of Ownership

John picks his spouse as beneficiary on his certificate, even though Acme Inc. owns the master contract.

Employee-paid Premiums

Jane sees a $3 deduction on her pay stub labeled “Life Ins.” for her share of the group plan.

Employer-paid Premiums

At year-end, WidgetCo deducts the full $50,000 group life premium as a business expense on its tax return.

Blanket Health Policies

The local pool covers every swim‐meet attendee for water‐related injuries without issuing individual certificates.

Group Life Insurance

At XYZ Corp, all 200 employees share one term life policy rather than each buying their own.

Annual Renewable Term

Acme’s group life plan automatically renews every January 1st for another year’s term coverage.

Policy Type

The company plan is term only, whereas Jane’s personal policy is whole life with cash‐value buildup.

Cost

Group coverage costs $2 per employee/month versus $6 for a similar individual term policy.

Adverse Selection

If only older employees enroll, claims spike and the insurer raises rates for the whole group.

Proof of Insurability

Bob misses his 31-day window and must now submit a health questionnaire to join the plan.

Physical Impairment Inclusion

Sara, who uses a wheelchair, is covered under her employer’s group plan with no extra premium.

Group Policy Termination

When Acme cancels its master policy, tenured staff convert their group term into their own whole‐life plan.

$50,000 Exclusion

Mary’s employer pays for $70,000 of coverage; $20,000 shows as taxable income on her W-2.

Group Underwriting Basis

Insurer charges Group B higher rates because its average age (50) exceeds Group A’s average (35).

Business-Beneficiary Premium Non-Deductibility

TechCo can’t deduct premiums on a buy-sell policy where it’s named beneficiary of the owner’s life policy.

Open Enrollment Period

New hires at TechCo have 31 days from start date to enroll in the group plan without medical questions.

Termination Events

When Tim is laid off, his group coverage ends and he enters the 31-day conversion window.