The Advisor's Guide to Group Life and AD&D Insurance

Thomas C. Kirner, Peter Silkowski

• Publisher: The National Underwriter Company
• Year: 2013
• Print ISBN: 9781936362882
• eBook ISBN: 9781938130571
• Topic: Business
• Subtopic: Insurance
• Index: Business

The Advisor’s Guide to Group Life and AD&D Insurance is a unique reference that enables you to understand group concepts and specifically manage individual, real-world issues. This brand-new, single resource serves the needs of veteran group insurance underwriters, producers, and sales staff-as well as those new or looking to enter the market. No other reference covers the issues of group term life and AD&D Insurance exclusively-or this extensively. This is the only resource that:» Covers group term life pricing with detailed expertise» Examines enrollment practices» Delivers insights into group products concepts» Dedicates extensive analysis to voluntary coverage» Explains risk factors influencing the rating process» Identifies specific elements within the plan that affect pricing» Makes it easy to research issues related to group term life» Presents numerous, relevant examples helping you explain key concepts» Fully analyzes the practical aspects of what actually goes on with group term life in the real world

Chapter 1 : History of Group Life and AD&D

While it may not seem pertinent to most group insurance professionals, the history and tradition of Group Life and Accidental Death & Dismemberment (AD&D) insurance provides insight into the evolution of the products and perspectives on their continued evolution. As the British historian, Albert Toynbee said, “‘History’ is a Greek word which means, literally, just ‘investigation.’”1 If we investigate the past, we are bound to find some insight for the present and trends for the future. Then we may find that the expression “what is old is new again” is sometimes applicable.

Group insurance as an employee benefit began in the early twentieth century. Even the earliest programs included group term life insurance, the subject of this book. Prior to the development of group life insurance, families of workers who died on the job were reliant upon “pass the hat” insurance. Employers frequently contributed to these collections. This system, however, failed to adequately meet the needs of employees and their families.

Fraternal and mutual benefit organizations sometimes helped to meet these needs. Yet, large gaps still existed. Thus arose a need for some form of insurance.

The introduction of a formal insurance program served to directly relieve the employer of any burden. Substituting a known fixed cost for the vagaries of unanticipated contributions was an attractive option, which was made even more sensible from a business standpoint when businesses became subject to corporate income tax in 1909.2 Companies could deduct business expenses from income and thus reduce their tax burden. Employer contributions to group life plans are still deductible as an ordinary business expense today.

Emergence of Group Term Life and AD&D Products

The first group term life insurance program was underwritten by The Equitable Life Assurance Society of New York in 1910. This policy was written on the 121 employees of the Pantasote Leather Company. However, the first truly notable group term life policy was issued to Montgomery Ward and Company in 1912. It covered nearly 3,000 employees.3 By 1919, at least 29 companies were writing this kind of policy.4

In its genesis in late nineteenth and early twentieth-century America, group insurance was viewed as quite controversial. According to The American Life Convention 1906-1952, a study of the history of life insurance, at the time the biggest concerns which insurance experts expressed were that group coverage:

• • Had too many pitfalls and was too great a risk for the average insurer to take on.
• • Was discriminatory without the submission of medical evidence.
• • Would destroy the idea of individual responsibility. Young men, who should be thinking about life insurance policies would say that the corporation would insure them so they need not worry about life insurance.
• • With the lower rates of term coverage it would become more difficult to sell the advantages inherent in any other form of insurance.5

None of these dire consequences ever came to pass. Group risk, just like individual life insurance risk, was spread across many lives. The insurer could also raise rates if mortality was greater than expected, as most group life was and still is written on an annual renewal term policy. The use of reinsurance also allowed insurers to spread the risk. Today, group term life insurance is a consistent profit maker for insurers. The concerns about discrimination were simply unfounded. Worries about people being irresponsible about the need for life insurance were unrealized.

Data published by the American Council of Life Insurers (ACLI) clearly show that both group and individual life insurance purchases have grown over time, as will be illustrated later in the chapter. Further, while group term life insurance rates are attractive compared to traditional whole life insurance products, the individual life industry itself began pushing the sale of individual term life and its lower costs relative to traditional whole life products.

Accidental death & dismemberment (AD&D) insurance is an additional benefit paid in the event of death due to an accident or certain types of injury.6 AD&D was originally issued as an additional benefit on life insurance policies against death in travel-related accidents.7 By 1904, AD&D riders were developed to cover all types of accidents in addition to travel-related accidents.8 While its first use in group policies is difficult to pin down, AD&D is clearly one of the earliest forms of group coverage to be developed.9 The reasons for its early adoption and popularity with employers and employees are easy to understand:

• • AD&D is relatively inexpensive.
• • It pays a significant benefit in the event of a covered loss.
• • Individuals could easily see themselves serious...

Table of contents

• Chapter 1 : History of Group Life and AD&D
• Chapter 2: The Purpose and Need for Group Life and AD&D Insurance
• Chapter 3: Regulation of Group Life Insurance
• Chapter 4: Types of Life Insurance
• Chapter 5: Group Life and AD&D Contract Provisions
• Chapter 6: Life and AD&D Risk Selection
• Chapter 7: Group Life and AD&D Manual Rates
• Chapter 8: Underwriting and Risk Management
• Chapter 9: Group Life and AD&D Claims Process
• Chapter 10 : Taxation of Group Term Life Insurance
• Chapter 11: Premium Payment Methods
• Chapter 12: Voluntary Life and AD&D Benefits
• Chapter 13: How Insurers Differentiate and Add Value
• Chapter 14: Issues In Changing Carriers
• Appendix A
• Appendix B
• Appendix C
• Glossary