GROUP INSURANCE
As with individual insurance, many different types of group insurance plans are available, including medical expense, group life, short-term and long-term disability, and dental insurance, among others. The most common group policy is offered by an employer for the benefit of its employees. The group plan sponsor receives a master policy, while individual insureds are given certificates of insurance that outline their coverage and benefits under the plan. Lower cost and the need to offer attractive benefit packages to attract and retain employees are a few of the reasons why group coverage is so popular.
Group insurance is typically provided by a business or association (the plan sponsor) for the benefit of its employees or members (the plan participants). With a group plan, a master policy is issued to the employer who pays the premiums and enrolls the group. The individual group participants are the insureds, who often share in the premium. There are several reasons for establishing a group insurance plan:
- Underwriting—Group insurance is underwritten based on the group’s anticipated claims experience and not on the expected individual claims experience. With the group as the unit of selection, persons can qualify for group insurance who otherwise may not qualify for individual insurance. Older, less healthy workers are carried by the younger, healthier members in the underwriting process. The very nature of group insurance allows for some
- Lower cost—An entire group is insured under one policy. For this reason, administration, paperwork and underwriting are less expensive than if individual policies were written on each of the group plan participants.
- Experience rating—Once a group is underwritten, renewal is based on the claims experience of the entire group. Under group plans that are experience rated—an arrangement normally reserved only for larger groups—lower claims mean lower premiums; higher claims experience means higher premiums.
Setting Up a Group Life Insurance Plan
An employer usually applies for a group life insurance policy, as with other types of group insurance. Individual policies are not issued; instead, a master policy is issued to the employer, who is the owner of the policy. Each participating member in the group is issued a certificate of insurance that specifies the terms of his or her coverage.
An eligible employee obtains coverage under the group plan by completing an enrollment form. This form may require a medical examination. For groups larger than 15 or 20, however, the policy is usually written on a guarantee issue basis, and no proof of insurability is required. The enrollment form requires employees to disclose certain personal data and to name a beneficiary. Anyone except the employer can be named as the beneficiary for payment of the death benefits.