Flow of Insureds
MR. WATSON: Look, as the group gets older, you need younger guys coming in to offset that mortality risk. Right? This spreads the risk over a diverse group of individuals, young and old.
Eligible Groups
MR. WATSON: As Jersey just told you, it has to be a natural group. A natural group is the kind of group that came together for some purpose other than buying life insurance.
MR. WATSON: Some examples:
- Single-employer groups - businesses
- Multiple employer groups
- Labor unions
- Creditor/debtor groups
- Fraternal organizations
Eligibility of group members
MR. WATSON: At most jobs you have eligibility requirements which means you must be a full time worker and actively at work. There is usually a probationary period which is a period of time such as 90 days before the employee may be allowed to enroll. This saves administrative expenses for those employees who stay only a short period of time. This is followed by an enrollment period, generally 31 days. We take the group as a whole, not the individual members. You remember that?
STUDENTS: Yes.
MR. WATSON: If the insurance company accepts the group, they can not carve out individuals that are sick. They have to accept everyone, if they take the group.
MR. WATSON: Now, listen. If you decide not to enroll in the plan during the enrollment period and then later you choose to enroll, you may have to prove evidence of insurability. That's to protect the company from adverse selection. There are those two words again. Why? Because these young guys may say, well, I don't need the insurance right now. I'm not going to enroll. We need their money to pay for the old dogs.
MR. WATSON: As the young guy gets older he decides, "I'm 30, I need to get insurance." We need to know why are you so adamant about getting this insurance all of a sudden, is something wrong?
MR. WATSON: All right. You have the eligibility requirements. Again those are perhaps like having to work three months, full time, followed by a probationary period, followed by the enrollment period.
MR. WATSON: "If an employee does not enroll in the plan in the enrollment period, which is typically 31 days, he may be required to provide evidence of insurability if he later wants to enroll." This is to protect the plan against what?
STUDENTS: Adverse selection .