Flashcards in Chapter 12 Deck (48):
Define the grace period provision in terms of group life insurance.
typically 30-31 days long. if premium is not paid in this time the policy will terminate.
what is a rule in the grace period provision, that is different from individual insurance?
if the policy terminates for nonpayment of premiums then the group policy holder is legalloy obligated to pay the premium for the covegrage provided during the grace period.
Define the incontestability provision that is specific to group life insurance.
limits the period during which the insurance company may use statements in the group insurance application to contest validity of the master group insurance contract. the insurer can contest an individual group members coverage without contesting the validity of the group.
what is the rules with beneficiary designations in term of group life insurance
unless its a creditor group, each member can name a beneficiary. The group member also has the right to change the beneficiary desgination.
who can be the beneficiary in a creditor life plan, but in no other type of plan?
the group policy holder
many group life insurance policies contain a portability provision. What does it do?
allows a group insured whos coverage terminates for a certain reason to continue her coverage under the group plan typically without presenting evidence of insurability.
what is portable coverage?
group insurance coveragte that can be continued if an insured employee leaves the group.
what are the conditions to continue coverage under the portability provision?
person must complete an application an pay the initial premium within a stated time after the group eligibility terminates.
some group like policies include a conversion privilege. what is that?
allos a group insured whose coverage terminates for certain reasons to convert her group life insurance coverage to an individual life insurance policy, usually without evidencfe.
is there typically a misstatement of sex provision in group insurance?
no, since group premiums do not vary according to sex.
what happens if a misrepresentation of age is discovered?
the insurer will retroactively adjust the amount of the premium required for the coverage to reflect the group insured's correct age. The amount of the death benefit payment remains unaffected.
All the usual settlement options are generally made available in group insurance, but a modification is made on the income option. What is it
the death benefit payable usually must be at least a stated minimum amount.
What is the type of insurance plan usually associated to group insurance?
YRT (yearly renewable terms)
Is evidence typically required for group insurance every year?;
can an insurer change the premium once the policy has been issued? why?
yes, the policy does not build cash value, so it can change the premium on the renewal
what is a benefit the emploees receive when employers pay the premium each year?
a financial benefit. The income tax treatment. Some or all of the premiums paid by the employer for a group term life insurance coveragre for employee are considered taxable income to the emplouee.
what is ADB attractive to employers?
theyre cheap, and some of them offer an additonal traval accident benefit which paus out if the employee is injured while travelling.
employers use group cash value life insurance plans to help employees purchase life insurance coverage that will continue after their retirement. what is required from the employees?
usually required to pay a significantportion of the premiums.
- participation from employees in this benefit is lower.
what are the 3 most commonly offered group cash value life insurance plans?
1. group paid0up plans
2. level premium whole lif e plans
3. group universal life plans
what are group life insurance purchased under a group paid up plan?
combines paid-up whole life insurance with decreasing amount of term life insurance.
- if the employee retired or leave the group for any reason, the amount of coverage he has purchased remains in force
what is group life insurance purchased under the level premium whole life plan?
its written on a limited-payment who life plan,
- since they build cash value, employers often sue them to provide retirement income benefits for emplouees.
- if the employee leaves before her planned retirement age, the coverage usually terminates.
some insurers offer UL (universal life) and or group variable universal life (VUL) plans. Define them in terms of group insurance.
the employer doesnt pay the premiums.
- each employe chooses their premiums, and the cash value depends on the amount paid.
- the particiapnts in VUL plans are given a cho9ie of different subaccount options for investing their cash values.
what is group creditor insurance?
its issued to a creditor such as a pan, to insure the lives of the creditos current and future debtors.
how does group creditor insurance differ from other types of group insurance policies?
1. they designated the policy holder as the beneficiary
2. the amount of insurance on each group insurance coverage usually is paid by the debtor, although it may be paid entirely by the creditor or
what does the income tax benefit provision do for group retirement plans
the benefit is provided for sponsors and particiapnts who deposit funds into retirement plans that meet the applicable government requirements
name the 3 compoenents of a group retirement plan
1. the plan ( describes the benefits and payout)
2.a method for administering the plan
3. the funding vehicle into which the plan assets are invested.
insurance companies are involved in activities related to those components of a group retirement plan. What are they?
1. designing and developing retirement plans
2. admnistering retirement plans
3. providing reireement plan funding vehicles.
what is a plan document?
a detailed legal agreement that establishes the existence of an employer-sponsored retirement plan and specifies the rights and obligations of various parties to the plan.
define an automatic participation emoloyer-sponsored retirement plan?
all eligible group members are automatically enrolled as plan participants. Typically, noncontributory plans are automatic plans.
define a voluntary participation employer-sponsored retirement plan
eligible group members have choice between participating or not participating in the plan.
what does a plan's vesting requirement define?
when a plan participant is entitled to receive partial or full benefits under the polan even if he terminates employement prior to retirement.
what is a benefit formulat?
it describes the calculation of the plans sponsor's financial obligation to plan participants.
what are the two most common types of benefit formulas?
1. defined benefit formula- specifies the amount of retirement beenfit a plan sponsor promises the provide4 to each plan participant.
2. defined contribution formular- specifies the level of contributions that the plan sponsor promises to make to the plan. The benefit that a participant will receive depends on the investment performance of the funds of the plan.
a plan sponsor usually names a plan administrator. What do they do (can be a person or a company)
they become resposible for:
- maintaining accurate reords on all participants
- determine amount of benefit pauable to plan paritipants
- provide participants with info about the polan
the sponsor of a retirement plan must choose a funding vehicle for the plan. What is this?
AKA funding instrument
- an arrangement for investing a retirement plan's assets as those assets are accumulated.
- insurers are flexible in tailoring their products to meet specific needs
what are the four general types of employer-sponsored retirement plans?
1. defined benefit pension plans
2. saving plans
3. profit sharing plans
4. stock bonus plans
What is defined under a benefit pension plan.
employees are guarenteed with a pension- which is a lifetime monthly income benefit that begins at retirement.
- generally are noncontributory
- in some countries some employes agree to contribute a certain % of employee's salaries to the plan, and employees can add too.
what is defined as a saving plan
is a retirement plan to which a plan sponsor may make contributions on behalf of a plan participant if the participant makes contibutuions to the plan.
- defined contribution plan
- amoutn of employers contibution = emlpoyees contribution
what is a popular type of savings plan in the us?
401(k) plan, which allows employees to make contributions on a pre-tax basis.
define the profit sharing retirement savings plan
its funded primariloy by cash contributions payable from the employer profits.
- contributiuons are based on companys profits (thus can flucturate)
define stock bonus retirement plans
. a plan sponsor that is a stock company makes contributions on behalf of plan participants in the form of corporations stock.
- regarded as stock bonus plan
- value of stock shares fluctuates
- do not promise to provide a monthly retirement income benefit.
for most people in the US, government retirement income benefits are provided under the OASDHI act, AKA social security. What id this?
a federal program that provides specific benefits [ including retirement income benefits] to people who have contributed to the plan during their income-earning years.
- also provides benefits to disabled, and dependants of deceased workers.
who manages the social security program?
the federal goverment administers the program and makes frequent changes in the funding and benefits.
what is the universal pension plan that provides a pension to all canadian r5esidents who are >65 y.o. regardless of pre-retirement wages?
the federal old age security (OAS)
every one person who is > 65, and is residents, receives the same pension amount. But peoples whos incomes exceed certain amount must do what?
repay part of all of the pension amount recieved.
what funds the OAS?
taken from federal government general tax revenus
what does the QPP or CPP give in addition?
provides pensions for wage earners who have contributed money into the plan during working years.
- participation is mandatory
- the amount paid out, if related to the amount contributed by the person.