Clients want to know:

What about group insurance?

After reading this, you should understand:

The different forms of group insurance coverage

Those with group insurance policies have a form and amount of coverage that is
controlled by the group policy owner. Understanding the benefits of group
policies may illustrate the need for additional personal coverage.
Group insurance is provided to employers, professionals, associations, unions, and
alumni groups. The theory underlying group insurance is that similar people band
together in these organizations. When such sameness exists, it is easier for the
insurer to more accurately assess risk and, correspondingly, to estimate premiums.
Group insurance has lower premiums for the same amount of coverage provided
on an individual policyholder basis, because risk is shared among the group
members and administrative costs are lower. The lapse rate due to premium nonpayment is reduced, because the employer pays all or part of the premium,
medical exams do not have to be reviewed by the insurer, and the probationary
period that most employees go through when they first join the company
eliminates employees who change jobs frequently.
Because risk is spread among the members of the group, the larger the group size,
the better. For this reason, standard group insurance begins with a group not
smaller than 25 people. When there are fewer than 25 members in the group, the
group is insurable as a small group, but evidence of insurability is often required,
because risk is not shared adequately. The smallest groups will be required to
show insurability.
Risk is further diminished by the requirement that a group include at least 75% of
eligible employees (eligibility being determined by the number of employees who
have met the requirements of the probationary period).
Group insurance is often provided as an employee benefit.

Copyright 2011 Oliver Publishing Inc. All rights reserved.

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N.B. All of these factors the pooled group of similar individuals, the size
requirements for the group, the need for a certain percentage of employees,
and the requirement for an employee to be a permanent employee to qualify
are all evidence of the insurance company preventing adverse selection.
In other words, whereas individual insurance attracts buyers who want
and/or need insurance (and pay premiums accordingly), group insurance
enrols everyone in the group, regardless of want or need, and may even
include those who would not qualify for an individual policy.
Many different
occupations
enjoy the
benefits of
group coverage
offered by their
employer or
professional
associations.

Who pays the premium on a group policy?

A
B
C
D

The group
The members of the group
The employer of the group
The eligible employees of the group

Group Life Insurance

+ FILE
See file 24
for group life policy
provisions.

Group life insurance is available as:

Term insurance;
Dependent life insurance;
Survivor income benefit insurance;
Optional group life insurance;
Accidental death and dismemberment insurance (AD&D);
Creditor group insurance.
Over 99% of group life insurance is yearly (one-year) renewable term
insurance. The contract for group term life must be renewed annually by the
policy owner, not by the individual group members. The policy owner is
responsible for paying the premium, and renewing the policy.

104 Copyright 2011 Oliver Publishing Inc. All rights reserved.

Group Insurance

The amount of coverage for the individuals covered by the group plan is
determined by the policy owner. This is why coverage provided in a group plan
sometimes needs topping-up in a personal policy if the coverage is lower than
need would indicate. The individuals, however, do name the beneficiary of their
group policy.
If a group plan provides for dependent coverage, a member of a group life plan
can cover his or her spouse (legal or common-law) and dependent children
through dependent life coverage. Dependent life provides a specified amount to
the group member in a lump-sum payment in the event that his or her spouse or
dependent dies.
A survivor income plan provides for the spouse and dependent children of a
group life plan member who dies. Instead of providing a lump-sum payment, this
plan provides an income in the form of ongoing annuity payments. Usually
payments are made monthly. The amount received by the survivors will be either
a flat amount or a percentage of the amount earned by the deceased to a predetermined maximum.
The spouse of a group insurance plan member would receive a lump-sum death
benefit if the group plan provided:
A
B
C
D

Dependent life coverage

A survivor income plan
Both of these options
Neither of these options

Optional group life, in addition to the basic life plan. Again, the type of
insurance provided is term, but the employee both chooses the amount of
coverage and pays for the additional coverage. He or she will also be required to
show evidence of insurability.
Accidental death and dismemberment (AD&D) insurance coverage provides the
same benefit to employees as those who elect such a policy on an individual basis.
The death benefit is paid to a beneficiary; the benefit from an injury is paid to the
employee. Similar exclusions to individual plans apply to group plans.
Group life insurance premiums, if paid by the employee, are paid with after-tax
dollars and therefore the life insurance benefit received by the beneficiary will be
tax-free. If the employer pays the premium, the employer must declare the
premiums paid in respect of the employee as a taxable benefit to the employee,
and therefore the life insurance death benefit is tax-free to the beneficiary.

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LLQP

Group life insurance coverage offered by employers is convertible by the

employee to individual life insurance, in the event the employee quits the plan
membership (usually by quitting the employment), within 31 days of termination
of the membership. The employee who opts for conversion is guaranteed to get
the coverage because there is no medical proof required but the employee will
have to pay the higher premiums of the individual policy based on his attained
age at conversion.
Group creditor life insurance is provided to creditors to insure the lives of their
debtors. A creditor is a person or institution that lends money. For instance, a bank
is a creditor. Those who borrow from a creditor are debtors; that is, a debtor owes
a debt to the creditor.

I ran into income-tax trouble

last year when I owed $19,000
and couldnt pay the bill. I went
to my bank and they gave me a
loan, which uses my house as
collateral. They suggested I
take out life insurance on the
loan so that, if I died, the loan
would be repaid and my wife
would continue to have the
security of our home. I did that,
and the premiums on the
insurance are included with my
monthly loan payment.

The policy names the creditor as beneficiary. Coverage is equal to the amount of
debt owed to the creditor. The debtor is usually responsible for premiums;
however, the creditor can pay the premium or a portion of the premium. Premiums
are included with the loan repayment, making it easy for the debtor to repay with
no chance of premiums lapsing, providing the debtor makes the loan payments on
time. If the debtor is responsible for premiums, then he or she can refuse to take
on the policy offered by the creditor and seek coverage elsewhere.

Group Disability Income Insurance

Group disability income insurance, also known as a wage loss replacement plan,
provides an income to a member of a group that is insured during a period of time
the insured is not able to work because of illness or an accident.

106 Copyright 2011 Oliver Publishing Inc. All rights reserved.

Group Insurance

Membership in a group plan can be complemented by a personal policy. For

instance, a personal policy might be used to extend the benefit period provided by
the short-term disability plan of the group. The client cannot supplement the
group benefit with a personal benefit or with government coverage so that the
amount being received in disability benefits is greater than what the client would
receive as income.
Group disability is structured into short-term disability (STD) and long-term
disability (LTD) benefits. STD benefits can range from 15 weeks to 24 months;
12 or 24 months is most common. LTD benefits begin when STD has expired.

Definition of Disability
Group disability income insurance defines disability quite differently from the
definitions in a personal plan.
Group insurance has a more restrictive definition of total disability in order to
reduce the number of qualifying claims and maintain the integrity of the group. A
group insured will receive a disability benefit if he or she meets the own
occupation definition for total disability. However, the own occupation definition
in group insurance is not the same as own occupation in an individual policy; it is
similar to the regular occupation definition found in individual long-term
disability income policies.
While receiving a disability benefit, the insurer will assess the disabled on an
ongoing basis with a view to retraining based on his or her education, experience,
and medical condition. If appropriate, the insurer will pay for retraining to restore
the disabled to a position that provides a level of income close to, or greater than,
what the disabled earned pre-disability.
If a disabled person cannot be restored to his or her level of pre-disability earnings
by the new position for which he or she has been retrained, LTD will provide a
full, or proportionate, benefit for the duration of the benefit period (e.g., two years,
five years, or to age 65).
+ FILE

Short-term Disability (STD)

This form of disability insurance is also called the weekly income benefit. It
covers an absence from work caused by an accident or sickness.

See file 25
about how
employment
insurance can be
used to reduce
employer costs for
short-term
disability.

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LLQP

When an accident is the reason for the disability, benefits sometimes begin on the
first day. When sickness is the reason for the disability, benefits generally begin
on the eighth day. Benefits are paid for a period of up to two years duration,
depending on the contract between the policy owner and the insurer, and are a set
percentage of pre-disability salary, typically either 60% or 66-2/3% of his or her
weekly income. This income is received tax-free if the employer declares the
premium paid by the employer as taxable benefit to the employee. If the premium
was not declared as taxable benefit, the employee disability insurance benefit,
minus the dollar amount the employee may have contributed towards premiums,
will be taxed.
+ FILE
See file 26
for a comparison of
individual and
group disability
insurance.

When the period of short-term disability insurance ends, if the employee is still
unable to work, the employee will begin long-term disability.

Long-term Disability (LTD)

Benefits for LTD are provided when an accident or illness seriously disables the
group member. Benefits begin when STD ends and they will continue for two
years, five years, or to age 65. The benefit amount is also a set percentage of predisability salary; 60% is typical if the employee has paid the premium, and 75% is
typical if the employer has paid the premium.
To qualify under most definitions, the group member must not be able to work in
his or her own occupation for an initial period of disability usually two years.
Benefits are paid after this period only if the group member is unable to work in
any occupation for which he or she is qualified.

+ FILE
See file 27 for
group disability
exclusions and
limitations.

I pay the disability

premium for my group
plan. Because I pay the
premiums and not the
company, if I go on
disability leave, the
money I receive will be
tax-free.

Group Health Insurance

Group health insurance can provide all the same benefits as individual plans.
They are an appealing employee benefit and again are provided to all members
covered by the group plan.

108 Copyright 2011 Oliver Publishing Inc. All rights reserved.

Group Insurance

Accident and sickness plans are provided for:

Extended health care benefits;
Dental insurance;
Vision care;
Accidental death and dismemberment.

Group Extended Health Care

Group extended health care, also called major medical, covers:
Ambulance services;
Prescribed drugs;
Private-duty nursing;
Appliances, such as back braces and artificial limbs;
Diagnostic services.

Group Dental Plans

Group dental plans reimburse the group plan member to the maximum benefit
payable under the plan. Procedures covered typically include:
Preventative (basic), diagnostic, and emergency endodontic and
periodontic procedures;
Restorative and surgical procedures;
Prosthodontic procedures;
Orthodontic procedures.

Vision Care
When eyesight correction is prescribed by an optometrist or ophthalmologist, a
vision care plan will pay a set amount towards purchase or replacement of an
appliance, whether glasses or contact lenses, within a set period of time.

Accidental Death and Dismemberment (AD&D)

Group Accidental Death and Dismemberment (AD&D) plans can be issued as a
stand-alone policy, and they can be added to a group life or health policy.
Group AD&D is a low-cost plan and provides an employee benefit at a relatively
low cost to the employer. The benefit of a group AD&D plan is usually equal to
the amount of the group term life plan. Coverage can be extended by a travel
accident benefit as a rider or a separate policy that will cover an accident that
occurs while an employee is travelling for the employer.

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The benefit is paid as a lump sum if death results from an accident or the insured
suffers qualifying multiple dismemberments; a partial benefit is paid for a partial
dismemberment.
AD&D is available as a basic plan and, additionally, as a voluntary plan. The
basic AD&D plan can insure different classes of employees at rates that can be a
multiple of salary, such as executives at five times salary, mid-managers at three
times salary, and all other employees at one times salary. The employer pays
premiums.
Voluntary AD&D is an option for employees already covered by a basic plan,
although it is sometimes offered to employees who do not have a basic plan. It
increases coverage, usually in $25,000 increments, to a maximum of $250,000.
There is no medical exam required and premiums, paid by employees through
payroll deduction, are very inexpensive.
Accidental death or dismemberment resulting from the following activities are
not covered by AD&D insurance (that is, they are exclusions):
An act of war;
Suicide or self-inflicted injury;
Service in the armed forces;
Flying in a non-commercial aircraft;
Committing a criminal offence;
Driving while impaired;
An accident caused by drugs or intoxicants;
Inhaling of poisonous gas, accidentally or intentionally.

110 Copyright 2011 Oliver Publishing Inc. All rights reserved.