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Educational Objective
II.B.1. Be able to differentiate between the following types of life insurance policies: participating and nonparticipating (see the Insurance Marketplace chapter), individual and group.
Individual life insurance is written on a single life. The rate and coverage are based upon the underwriting of that individual.
Group life insurance is written as a master policy, issued to the sponsoring organization, covering the lives of more than one individual member of that group. Individuals covered by group life insurance do not receive a policy, but receive a certificate of insurance from the master policy. The amount of coverage on certificate holders must be determined according to nondiscriminatory rules. The rate and coverage are based upon group underwriting with all individuals covered for the same amount and rate. The cost of coverage paid by the employer in excess of $50,000 is taxed to the employee.
Other characteristics of group policies include
The group must exist for a reason other than purchasing group insurance; and
Individual members covered under the group master policy must have the right to convert their coverage to an individual policy without evidence of insurability should they leave the group.
Key Takeaways
Individual life insurance is underwritten and rated on a single life; group life is written as one master policy covering many members
Group members receive a certificate of insurance, not a policy, and coverage amounts must follow nondiscriminatory rules
Employer-paid group coverage in excess of $50,000 is taxable income to the employee
Members leaving the group have the right to convert to an individual policy without evidence of insurability