Group Life And Health Insurance

From the inception of group accident and sickness insurance in 1910 and group life insurance in 1911, group insurance has shown such rapid growth that in 2008 group health insurance premiums represented over 60 percent of all the health insurance premiums paid to insurance companies in the United States. In the same year group life insurance in force represented over 30 percent of all life insurance provided by legal reserve life insurance companies.Recent trends suggest that this growth will continue in the future. While group policies contain many of the same provisions, exclusions, and limitations of individual insurance, its underwriting characteristics and uses are rather unique. 

Nature of Group Insurance 

The nature of group insurance can best be understood by examining its underwriting philosophy, its underwriting requirements, and the advantages and limitations of its use. Underwriting philosophy. Group underwriting differs somewhat from individual underwriting because the question is not so much whether the risk should be accepted or rejected but whether an acceptable plan of coverage can be written at a profit to the insurer. 

With respect to certain considerations the group is underwritten as if it were an individual. For example, the potentially high mortality rate for a group of cropdusters would make them unattractive for group life insurance. 

Groups are evaluated also on the basis of moral standards and economic levels because some underwriters feel that substandard moral and economic conditions tend to produce high mortality and morbidity experience. 

Possibly more important than the actual characteristics of the group is the type of facilities the policyholder, usually the employer, makes available for administering the plan. The policyholder must be capable of keeping accurate and otherwise valid records regarding employee eligibility, beneficiary changes, and employee contributions. The quality of policyholder administration is especially important in group plans where the employee pays all or a portion of the premium. Finally, the underwriter must be satisfied that the policyholder or employer will be cooperative and support the plan. 

Because the great majority of group plans are underwritten without the insureds undergoing medical examinations, some persons question the logic of indiscriminately allowing individuals with poor health to obtain coverage. It is further argued that those in poor health will cause the cost to be greater than that sufficient to insure only the healthy members of the group. Probably the greatest reason for allowing coverage for those in poor health is that 75 percent of the persons eligible for the insurance must participate if the plan is contributory, i.e., the insureds pay a portion of the premium, while 100 percent is required for noncontributory plans. The large participation usually provides a good cross section of insureds and balances the good and bad risks. In fact, it has been suggested that in the case of employee groups, the average health is better than normal because usually only healthy individuals are able to obtain a job, and those individuals whose health deteriorates tend to leave work.