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Recap of Chapter Six

  1. A natural group is a group that is formed for a purpose other than obtaining or lowering the cost of insurance. 6.1

  2. Employer-sponsored group life insurance represents the largest segment of group insurance coverage in force. Under these plans, the employer receives the Master Policy, while employees receive a Certificate of Insurance as evidence of their coverage. 6.1

  3. In most group insurance plans, individual evidence of insurability is not required for employees who enroll when they first become eligible. 6.1

  4. In a noncontributory plan, the employer pays the full cost of the insurance premiums, and 100% of eligible employees must participate in the plan. 6.1

  5. In a contributory plan, employees may share in the cost of the premiums or pay the entire premium themselves. In these plans, at least 75% of eligible employees must participate to reduce the risk of adverse selection. 6.1

  6. If an employee loses eligibility for group insurance due to termination of employment or a change in employment classification, the employee has a 31-day conversion period during which they may convert the group coverage to an individual policy with the same insurer without providing evidence of insurability. The premium for the new policy will be based on the employee's attained age. 6.1

  7. The conversion period also acts as a grace period. If a terminated or ineligible employee dies during this 31-day period, a death benefit will still be paid under the group policy, minus any premium that would have been due. 6.1

  8. Most group life insurance policies are issued as Annual Renewable Term (ART) coverage. 6.1

  9. Group insurance coverage may be provided through various sponsoring organizations, including employers, labor unions, debtor groups, associations, and trusts. 6.2

  10. Credit life insurance is typically issued as a group policy to a creditor to insure the outstanding balance of a debtor's loan. This coverage is usually structured as decreasing term insurance, meaning the amount of coverage declines as the loan balance decreases. Premiums are generally paid by the debtor, and the amount of insurance cannot exceed the total amount of the debt. 6.2

  11. The business uses of life insurance are similar to personal uses in that they protect against financial loss resulting from the unexpected death of individuals such as business partners, executives, or key employees. However, the purpose is to provide funds that allow the business to continue operating, rather than to provide benefits directly to the deceased individual's heirs. 6.3

  12. Buy-sell agreements establish a predetermined price and method for purchasing the ownership interest of a deceased business participant. These agreements are commonly used in closely held corporations, partnerships, and sole proprietorships. 6.3

  13. The main types of buy-sell agreements that may be funded with life insurance include cross-purchase plans, entity-purchase plans, and stock redemption plans. 6.3

  14. In a cross-purchase plan, each business partner owns life insurance policies on the lives of the other partners. The policy proceeds are used by the surviving partners to purchase the deceased partner's ownership interest. 6.3

  15. In an entity-purchase plan, the business owns the life insurance policies on each owner or principal and is also named as the beneficiary. The proceeds from the policy are used by the business to purchase the deceased owner's interest in the company. 6.3

  16. A stock redemption plan is a type of buy-sell agreement between the shareholders and a closely held corporation. Under this arrangement, each shareholder agrees that upon their death, their shares will be sold to the corporation based on the price, terms, and conditions outlined in the agreement. 6.3

  17. Key person life insurance is purchased by a business to protect against the financial loss that could result from the unexpected death of a valuable employee. A key employee typically possesses essential knowledge, experience, skills, or leadership that significantly contributes to the company's success or revenue generation. 6.3

  18. The premiums paid for key person life insurance are not tax-deductible as a business expense. However, the business generally receives the death benefit income tax-free. 6.3

  19. A life insurance policy is considered to have third-party ownership when the policyowner and the insured are different individuals, such as when a husband purchases a policy on the life of his wife. 6.4

  20. To qualify for Social Security benefits, an individual must be fully insured, or be the spouse of someone who is fully insured. Fully insured status is achieved by earning 40 credits through covered employment. 6.5

  21. A spouse or minor child of a deceased worker (or a deceased retired worker) may qualify for Survivor Income benefits and may also be eligible to receive the one-time Social Security death benefit of $255. 6.5

  22. Survivor income benefits may be paid to a surviving spouse who is caring for a minor child under age 16 of the disabled or deceased worker. 6.5

  23. The blackout period refers to the time during which a surviving spouse or former spouse is not eligible to receive survivor benefits, typically occurring between the time the youngest child reaches age 16 and when the spouse becomes eligible for survivor benefits at age 60. 6.5