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Group insurance environment test 2
Terms in this set (23)
-originated in columbus, Georgia in 1886.
-500 brands in "over 200 countries"
-1.9 billion servings per day worldwide.
-.01 profit per serving
-$19 billion profit per day (7 billion per year)
-Market cap= $190 billion
-BRK owns about 9%
-employer self insures benefit costs
-employer administers the plan and bears risk that benefit payments will exceed those expected.
-Employees and possibly their dependents insured under a single policy issued to the employer.
-Insurer administers many aspects of the plan and bears risk related to benefit payments that exceed expected levels.
-insurer pays upon death of insured
-$8 trillion face amount
-almost 1/2 or life insurance in force.
-premium increases with age
Voluntary benefit plans
-group or individual insurance provided via the employer
-employees each pay 100% of premium.
-Ex: vision, dental, supplemental life ins, disability.
-the group doesn't exist to obtain insurance
-steady flow of people (in/out)
-minimize individual bias
-high participation rate
-good prior experience
-good underwriting factors
-Determination of eligibility
a)who and when
b) probationary period- time that must pass before employee is eligible for coverage under a group benefit plan. at least 30 days.
c)Open enrollment:time period (2-4 weeks) where you get information about employee benefits (ex: choices for health plans,dental & vision plans) sometimes there is adverse selection (people who have been with the company for a while but all of the sudden decide to sign up for these benefits).
Group underwriting premium payments
-noncontributory: employer pays 100% of cost/premium. Best type
-partly contributory: employer and employee each pay part of cost/premium. (most common. companies today pay about 80% of premium).
-fully contributory: employee pays 100% of cost/premium. Used more for voluntary plans such as dental & vision plans.
Group underwriting composition
a) age, gender, and income of employees in a group affect the experience. The company provides information to the insurer.
Group underwriting industry
-geographic location: where you live is highly related to how much things cost.
-employee concentration/dispersion: EX: world trade center, horrible workers comp claims
Contractional provisions: mandatory provisions may be altered only if they result in more favorable treatment of the policy owner.
-most uniform provisions are in the group life area. EX: grace period,incontestability, conversion.
-effects only those employee benefits funded through insurance contracts.
-incontestability: after two years the insurer cannot contest the claim.
conversion: convert life insurance policy into cash.
State Regulation cont'd
-Premium taxes: typically 2% tax rate ( essentially a sales tax)
- Domiciled (company legally based in Ga vs Non-domiciled (can be taxed at a higher rate)
-Apply only to insurance companies, not self funded plans
-premiums deductible as business expense by employer
-premiums paid by employers for the benefits to employees often not taxable to employee.
Federal regulation- Age Discrimination in employment act
-protects individuals who are age 40 or older from employment discrimination based on age.
-applies to private sector and government employees
-permits reduction in some benefits for older (>65 ) works
-not requirement that benefits be provided to retired employees.
-Prohibits mandatory retirement age (certain exceptions)
Federal Regulation- Pregnancy discrimination
-pregnancy, childbirth, or related medical conditions must be treated the same as other medical conditions. If Disability or sick leave is available, then must provide for pregnancy and its related medical conditions.
-employer provided medical insurance must cover pregnancy related conditions (regardless of Marital status) on same basis as other medical conditions.
-Does not apply to individual medical expense insurance.
-applies to private sector and government employees.
size of business to % of market
* <10 employees = 1% of market
*10-24 employees= 2% of market
*25-99 employees = 5.5% of market
*100-499 employees= 9.2% of market
*500+ employees = 82.3% of market
Group life insurance
-insurer pays upon death of insured
-$8 trillion face amount
-almost 1/2 of life insurance in force
-90% of group life insurance is term
-40% of individual life insurance is term
-premium increases with age, over time
Common Benefit Provisions Eligibility Requirements
-Actively at work
Contract Provisions: Benefit Schedules
-classifies employees who are eligible for coverage
-Specifies the amount of coverage for each
-multiple of earnings is most common
-specified dollar amount
-Flat benefit schedule
-dollar amount by earnings
Common Policy Provisions settlement options
1) lump sum: many insured choose for insurer to keep money, then credit to insureds account and take lump sum later.
2)Fixed period: can spread $1 mil over 5, 10, 15, 20 years. like an annuity but for a fixed time
3) fixed amount: gives $10,000 a month as long as the money lasts
4)life income option (Annuity): amount that your can't outlive. if you're 65, get $84,000 (8.4) a year.
Common Policy Provisions
-Waiver of premium (if disabled): if we become disabled, insurer will waive premium and life insurance would stay in effect.
-Grace period (31 days): don't want someones life insurance to end if they don't pay on time.
-incontestability: after two years the insurer cannot come back and say there was misrepresentation.
-Misstatement of age. If you misstate your name the insurer will adjust but if you underestimate your name you will get less.
Conversion to individual policy: when you leave employer your life insurer at old employer will ask if you want to convert it and you're done with the term insurance. you have to convert to cash value.
-Cash value, individual rates
Common Policy Provisions termination
-Insurer may terminate group coverage
a)non payment of premium
b)required group size not maintained
c)required participation rate not maintained
-employees coverage termination
b)master contract terminated
c)employee ceases to be eligible
d)employee fails to make contribution.
Group life insurance Riders
1) Supplemental Life Insurance
2)Accidental Death and Dismemberment: $.08 a month for $1000 of coverage. Should buy coverage for some tat that pays for anyway you die, not just an accident. Profitable for the insurer.
-Dismemberment: a schedule that says what each body limb is worth.
3) Dependent life insurance: coverage for wife, kids.
Group life insurance and Taxation
Employer: Tax deductible expense except when:
1) overall compensation is unreasonable
2)Employer named as beneficiary
-Tax implications for employee
1) payments for premiums by employee- With After-Tax income (not deductible)
2) Payment for premiums by employer
Code Section 79 Benefits
- Premium paid by employer for first $50,000 (Not taxable income to employee)
-Premium paid by employer for coverage above $50,000 (taxable income based on cost from following table).
-- Amounts above $50,000 is when we get taxed for what employer chips in.
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