6.4.2 Group Permanent Life Insurance
Group permanent life insurance (also known as Whole Life) in the group plan market can be broken down into three different types of offerings.
- Group Ordinary plans
- Group Paid-Up plans
- Group Universal Life plans
Group Ordinary Plan
Group ordinary insurance is any type of group life plan that uses cash value life insurance in the plan. When employees contribute to their group plan, they are normally allowed to own the cash portion of the policy. However at the employer's discretion if an employee terminates employment, the cash value can be retained by the employer and used to help fund the plan for the remaining employees.
Group Paid-Up Plans
Group paid-up plans combine term life insurance (paid by the employer) and whole life (paid by the employee). The death benefit is a total of the two plans. At retirement or termination the employee is entitled to the cash value (paid-up) policy.
Group Universal Life Plans
Group universal life plans offer a greater degree of flexibility than is usually found in other group life plans. The employee pays most of the premium payments; however, they are given certain latitude in selecting the amount of insurance and the premium amount to be paid.
Group life insurance policies avoid discrimination by designing their coverage using flat benefits (same amount of coverage per person), employment positions within the group (higher level qualifies for higher benefit limits), and tying life insurance benefit to earnings (higher salary qualifies for higher benefits limits). By setting benefit schedules such as these, the employer is less vulnerable to adverse selection.
