Group Life Insurance

• Natural groups only
• Certificate of coverage given, not a policy
• Contributory & non-contributory plans
• Employer contributions are tax-deductible/ employees' contributions are NOT deductible
• Benefits to beneficiary are tax-free

Group Insurance

MR. WATSON: Let's discuss to group life (See group insurance). Group life is typically provided by an employer for it's employees. It is a single contract between the business and the insurance company. The employees are not named in the contract. The insurance company takes the group as a whole, not the individual members, which means the insurance company either insures the whole group or none at all. They can not insure the group but exclude some guy because he has an illness. If they take the group, they take him as well.

MR. WATSON: What kind of group does it have to be?

WOMAN: A business?

MR. WATSON: That's an example.

WOMAN: Oh yeah, a natural group .

MR. WATSON: What's a natural group?

STUDENT: One that got together for a reason other than buying group insurance. Like a business. Group insurance must be incidental (incidental means not primary) to why the business was formed.

MR. WATSON: An unnatural group would be a group of folks coming together for the primary purpose of buying group insurance. Trying to get life insurance cheaper.

MR. WATSON: With group insurance do the employees get a policy?

STUDENTS: No.

MR. WATSON: What do you get?

STUDENTS: You get a certificate.

MR. WATSON: Now, the contract is between the owner of the business and the insurance company. Are you, the employee named?

STUDENTS: No.

MR. WATSON: You're not even named.

 

Principles of Group Insurance

MR. WATSON: Principles of group insurance. In most cases it's the policyholder, the employer, that selects the types of coverages.

MR. WATSON: Noncontributory plan. Guys, if it's a noncontributory plan, are the employees contributing?

STUDENTS: No.

MR. WATSON: If it's a contributory plan, are the employees contributing?

STUDENTS: Yes.

MR. WATSON: Of course. What you need to know is that most state laws say that noncontributory plans have to have 100% participation. There's no requirement for contributory plans, but noncontributory plans have to have 100% participation. Remember that. It basically means that if the boss is nice enough to pay for the entire premium for one person, then the law says they have to be nice enough to pay for it for all the eligible members of the group.

 

Features of Group Insurance

MR. WATSON: Features of group insurance. Experience rating is a "track record." The insurance company is going to look at the business's track record. If they are a group of asbestos inhalers, what would our track record be like?

STUDENT: Not good.

MR. WATSON: It would be very high as compared to petunia growers. So the premium would be higher than for petunia growers.