Group Life Insurance

Definition: Group life insurance covers more than one life, usually for employee-employer groups.
Policy Type: Most often written as an annual renewable term policy.
Underwriting Principle: A large percentage of the group must be insured.

Contributory Plans: Employees share the cost; at least 75% participation is required.
Noncontributory Plans: Employer bears the cost; 100% eligibility is required for coverage.

No Evidence of Insurability: Individuals don't need to prove insurability; underwriting is done at the group level.
Master Contracts: Instead of individual policies, a master contract is issued to the employer, and employees receive a certificate of insurance.
Low Cost: Reduced administrative and selling expenses contribute to lower costs.
Flow of Insureds: Continuous change as individuals join or leave the group.
Typical Coverage: Usually issued as level term insurance, providing fixed coverage.

Group life insurance is categorized into two main roles:
- Certificate Holders: Employees insured under the master policy.
- Contract Holders: Employers who hold the master policy.

Formation: Groups must be formed for reasons other than obtaining insurance.
Types of Groups:
- Single-employee groups
- Multiple-employee groups
- Labor unions
- Trade associations
- Credit/debit groups
- Fraternal organizations
- Trustee groups (formed by multiple employers or unions)
Eligibility Criteria:
- Must be full-time employees.
- Automatic payroll deduction approval required for contributory plans.
- A probationary period of 1 to 6 months for new employees.
- Employees have 31 days to enroll or may need to provide insurability evidence.

Importance: Minimizing adverse selection - when those most likely to claim insurance enroll more than healthier individuals.
Underwriter Risk Classification:
- Preferred: Low risk with lower premiums.
- Standard: Average risk with no additional ratings.
- Substandard: High risk with increased premiums; may be rated up.
- Declined: Not insurable due to high potential loss.

Group Term Life: Annual renewable term policy; renewed without evidence of insurability.
Group Whole Life: Less common, provides permanent coverage.
Common Group Permanent Plans: Group Ordinary, Group Paid-Up, and Group Universal Life.
Dependent Coverage: Covers members' dependents but typically limited to 50% of the member's coverage.

Requirements for Favorable Treatment:
- Benefits must cover at least 70% of employees.
- No more than 15% of participating employees can be key employees.
Premium Tax Deductions:
- Paid by employees = not tax-deductible.
- Paid by employers = deductible as a business expense.
Policy Proceeds:
- Lump-sum payments are tax-free.
- Installment payments are taxable on the interest portion.

Factors influencing employer-established benefit schedules:
- Earnings
- Employment position
- Flat benefits structure

Termination: If coverage ends, members can convert to individual whole life coverage without proof of insurability.
Application Period: Must apply within 31 days post-termination while still covered under group policy.
Master Policy Termination: Members insured for at least 5 years can convert to individual policies equivalent to the face value of the group policy.

Franchise Life Insurance: Individual policies for employees of common employers or associations (e.g., different companies).
Group Credit Life: Established by lenders to cover loan repayment in case of the insured's death. Typically uses a decreasing term policy.
Blanket Life Insurance: Covers groups exposed to the same risks with no specific individuals named; just general risk coverage.
Group Permanent Life Plans: Uses permanent or whole life as policy foundation with varieties like group ordinary, group paid-up, and group universal life.