Chapter 8: Group Life Insurance

Blanket Health Policies

These policies are issued to cover a group that may be exposed to the same risks, but the composition of the group (i.e., the individuals within the group) are continually changing. A blanket health plan may be issued to an airline or a bus company to cover its passengers or to a school to cover its students. As compared to group insurance, no certificates of coverage are issued in a blanket health plan.

Certificate of Insurance

This is a document that’s issued by an insurance company/broker and used to verify the existence of insurance coverage granted to individuals under specific conditions. With group insurance, the group (typically the employer) is the policy owner and maintains a master policy. The insureds (typically the employees) receive a certificate of insurance rather than a policy.

Contributory Plan

This is a group insurance plan that’s issued to an employer under which both the employer and employees contribute to the cost of the plan. Generally, 75% of the eligible employees must be insured in most states. The employees must contribute to the cost of the plan.

Conversion Privilege

Before an original insurance policy expires, this privilege allows a policy owner to elect to have a new policy issued which will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at the time of conversion) or at original age (premiums based on the age of the insured at the time of original issue). Conversion is a common privilege for term life insurance and all group insurance. The insured is not required to prove insurability (good health) when converting a policy.

Credit Policies

These policies are designed to help the insured pay off a loan in the event she’s disabled due to an accident or sickness, or she dies. If the insured becomes disabled, the policy provides for monthly benefit payments that are equal to the monthly loan payments due. If the insured dies, the policy will pay a lump-sum to the creditor to pay off the loan. Credit policies typically cannot exceed the amount of the loan since that’s the limit of the creditor’s insurable interest in the insured(s).

Franchise Insurance

This is a life or health insurance plan for covering groups of persons with individual policies that are uniform in provisions, but perhaps different in benefits. Solicitation typically takes place in an employer’s business with the employer’s consent. Franchise insurance is generally written for groups that are too small to qualify for regular group coverage. This policy may be referred to as wholesale insurance when the policy is life insurance.

Master Policy

This policy is issued to the employer under a group plan and contains all of the insuring clauses which define employee benefits. Individual employees who participate in the group plan receive individual certificates that outline the highlights of the coverage.

Non-Contributory Plan

This is an employee benefit plan under which the employer bears the full cost of the employees’ benefits. In most states, the plan must cover 100% of eligible employees. The employees do NOT contribute to the cost of the plan.

Persistency

As it pertains to insurance, persistency is the percentage of policies that an insurer has in force after a specified period. Persistency is negatively impacted by policies that are replaced by other insurers, that are canceled by the policy owner, or that lapse due to non-payment. Companies with higher persistency are more stable and profitable than those with lower persistency. In general, companies aim for 80% persistency after three-years, and 60% persistency after five years. This means that 60% of the policies that were written five years ago should still be active.