Types of Group Life

There are three forms of group life insurance

1. term
2. permanent
3. creditor

Group Term Life

• virtually all group life insurance is one-year renewable term
• the group policyowner renews coverage every year
• conversion option
• also available to group members: optional coverage for dependents (spouse, children); no conversion option
• survivor income plan pays death benefit as monthly income instead of a lump sum until
  • spouse: remarriage or reaches age 65
  • child remains: unmarried, full-time student, or reaches age 25
  • benefit amount depends on the number of survivors

Group Permanent Life

This coverage is uncommon. There are three possibilities

1. group paid-up
   • a combination of paid-up whole life (employee-funded) and decreasing term (employer-funded)
2. level premium whole life
   • example: premiums to age 65
   • the cash value can provide retirement income
   • the employee's contribution is their interest in the policy
3. universal life
   • usually funded fully by the employee
   • portable: can continue even after leaving the group

Group Creditor Life

• protects the lender (creditor) from the death of the borrower (debtor)
• beneficiary = creditor
• death benefit = outstanding loan owed to creditor
• premium payer = borrower (usually); creditor may pay part of the premiums
• premium included in the loan repayment
• the borrower can buy coverage elsewhere

Policy Provisions

There are four common policy provisions

1. benefit schedule
2. beneficiary designation
3. conversion option
4. misstatement of age

Benefit Schedule

The benefit schedule shows how the death benefit is determined

• a multiple of salary (e.g., two times salary)
• the same amount for everyone (e.g., $30,000)
• the same amount for job classification (e.g., $100,000)

Beneficiary Designation

• can be revocable or irrevocable
  • exception: for group creditor life, the beneficiary is the creditor (irrevocable?)

Conversion Option

• an option for a group member to get individual life insurance without evidence of insurability
• available when group coverage ends
  • member leaves group (e.g., changes employers)
    • apply and pay for an individual policy within 31 days of leaving
  • group policy ends (e.g., employer goes out of business)
    • if also covered by a group plan for 5⁺ years
      • minimum of {$10,000, the difference in coverage between the old and new groups}
      • no break in coverage if switching insurers
• group coverage continues during the 31-day conversion period

Misstatement of Age

• insurer retroactively adjusts the premium to reflect the true age of the group member

Note: for individual life insurance, the death benefit is adjusted instead