Group life insurance benefits

 This is the  most prevalent benefits provided to employees and are a mandatory component of most group benefit plans. The purpose of the group life insurance benefit is to transfer to an insurer part of the financial loss due to the death of an insured person. On the Insured’s death, the insurer pays a stated amount to the Insured’s beneficiary or estate. The rates are revised annually or at contract renewal based on the groups demographics. Premiums paid by the employer are considered taxable, but the benefit is non-taxable.

Benefit Structure:

Group life insurance benefits are typically either earnings based or a flat amount of insurance.

For example:

Earnings based:

• 1X annual earnings
• 2X annual earnings

Flat amount:

• $25,000
• $50,000
• $100,000

Non-Evidence Maximum (NEM):

The non-evidence maximum is the amount of insurance that the insurer will provide to an individual without the individual being required to submit evidence of good health. Any amount an employee is eligible to apply for above the non-evidence maximum requires the employee to submit medical evidence to the insurer. The insurer will then ask for further information if required, approve or decline the excess coverage. As some employees may not qualify for coverage medically, the non-evidence maximum wherever applied is an extremely valuable and important feature of a group benefits plan.

For example, a schedule of benefits is earnings based, at 2 times annual salary and the non-evidence maximum is $150,000. An employee earns $100,000 per year, their coverage should be $200,000 but the NEM would limit it to $150,000. The employee has the option of submitting medical evidence and applying to the insurer for the difference between the non-evidence maximum of $150,000 and the full coverage amount of $200,000. If approved, the employee would have the full coverage of $200,000 and if declined the employee would have coverage up to the NEM, or $150,000.

Overall Maximum:

The overall maximum is the maximum amount of life insurance the insurer will issue on any one life in a group over and above the NEM.

Waiver of Premium:

Waiver of premium is typically only available to employees under the age of 65. If an employee is totally and permanently disabled while insured for at least six months and under the regular care of a physician, they can typically apply to the insurer to have their group life insurance premiums waived.

Reduction Schedule:

The group life insurance benefit will typically be reduced by 50% at age 65 under most plans. Following the reduction, it may reduce further or terminate at other stated ages.

Evidence of Insurability/Medical Evidence:

Evidence of insurability is processed through a medical or health questionnaire completed by the employee. Based on the information submitted, the insurer may require further information such as medical exams, blood tests or other requirements before it approves or declines the application for insurance.

Common examples of when an employee must provide medical evidence are:

• When electing for optional life insurance coverage.
• When applying for levels of insurance above the non-evidence maximum.
• When the employee is a late entrant, which typically means they are applying for coverage more than 31 days after their eligibility to enroll.
• When the employee refuses coverage and wants to join the plan later.
• For smaller plans, typically consisting of one to two employees medical evidence may be required to apply for the plan in general.

Conversion Privilege:

When a group benefits plan terminates or an employee leaves the plan, the employee can typically apply to convert their life insurance to an individual policy. The conversion privilege is usually subject to age, a maximum amount of insurance and must be applied for within 31 days of the group benefits plan termination.

Optional Life Insurance:

Some plans include the option for insured employees to apply for optional life insurance coverage to supplement their group life insurance benefits coverage. Some insurers extend optional life insurance to the spouse and/or dependent children of the insured.