The following are the two features that separate group insurance from individual insurance.

► the individual does not have to provide evidence of insurability
► are not issued as individual policies so the individual does not own the contract
► typically issued as level term term insurance, which provides a fixed amount of coverage throughout the
     term of the contract


Note: Since the individual does not own or control the policy, they are issued a certificate of
insurance (sometimes called certificate of coverage and benefits) to serve as evidence of an employee's coverage. The actual policy, which is called the master policy, is issued to the employer.

► Employees are called – certificate holders
► Employers are called- contract holders

Group life insurance can be formed by the following as well as other organizations, just as long as they are formed
for a reason other than to obtain insurance.

► Single –employee groups
► Multiple-employee groups
► Labor Unions
► Trade Associations
► Credit/Debit groups
► Fraternal Organizations
► Trustee Groups (Established by two or more employers or labor unions)

Eligibility of Group Members – (employees)

► Employee must be full time and actively working
► If contributory, employees must approve of automatic payroll deduction
► New employee probationary period is usually 1 to 6 months
► The employee has 31 days during the enrollment period to sign up. Otherwise, they may need
to provide evidence of insurability

Insurers require that a minimum number of group members/employees participate in a group insurance plan in
order to minimize adverse selection. Adverse selection means that the people most likely to need life insurance will
purchase life insurance in greater numbers than those in good health.

After all necessary information is collected on an applicant, the underwriter will classify the applicant based on the
degree of risk assumed.

The following rating classification system is used to categorize the favorability of a given risk:

► Preferred – Low Risk – Lower Premiums
► Standard - Average Risk – No Extra Ratings or Restrictions
► Substandard – High Risk – Rated Up – Higher Premiums
► Declined – Not Insurable – Potential of Loss to Insurance Company is Too High

Lower risks tend to have lower premiums. If an applicant is too risky, the insurer will decline coverage.

For a group life insurance plan to receive favorable tax treatment, there are certain requirements in place. This
makes sure that the average employee is not discriminated against in favor of higher level employees.

Determining eligibility: Must benefit at least 70% of all employees. At least 85% of all participating employees
must not be key employees.

Premiums for group life insurance: If paid by the employee are not tax-deductible. However, if the employer
pays, it can deduct the premiums it pays as a business expense. The IRS requires the cost
of employer-provided group life insurance above $50,000 to be taxable as income to the employee.
Proceeds from a group life policy are tax-free if taken in a lump-sum. Proceeds taken in installments
will be subject to taxes on the interest portion of the installments.

Most employers will establish benefit schedules according to the following:

► Earnings
► Employment position
► Flat benefit

Conversion to Individual Policy: If a member’s coverage is terminated, the member and his dependents may
convert their group coverage to individual whole life coverage, without having to show proof of insurability.

Conversion Period: An individual must apply for individual coverage within 31 days after the date of group
coverage termination. An individual is covered under the group policy during the conversion period.

Group Policy Termination: If the master policy is terminated, each individual member who has been insured for at
least 5 years is permitted to convert to an individual policy, providing coverage up to the face value of the
group policy.

The following are other types of life insurance issued as group plans:

Franchise Life Insurance: This is used when participants are employees of a common employer (i.e., the
employer may operate several companies) or are members of a common association or society. The
employer/association/society is a sponsor of the plan and may or may not contribute to the premium payments.
Unlike the employer’s group plan, each individual will be issued an individual policy which will remain in force as
long as premiums are paid and the employee/member maintains their relationship with the sponsor. These are used
by small groups who individually do not meet the state’s minimum numbers required by law.

Group Credit Life: These are set-up by banks, finance companies, etc., to provide that if the insured dies before
a loan is repaid, the policy benefits will be used to settle the loan balance. Premiums for group credit life insurance are based on claims experience and expense factors, not necessarily the borrower's age. The premiums are usually paid by the insured. A decreasing term policy is commonly used.

Blanket Life Insurance: Covers groups of people exposed to the same hazard, such as passengers on an airplane.
No one is named on the policy and there is not a certificate of coverage given out. Individuals are only covered for
the common hazard.