GROUP UNIVERSAL LIFE INSURANCE : Types of Group Universal Products & Underwriting

Types of Group Universal Products
Two approaches have been used in designing group universal life insurance products. Under the first approach, there is a single group insurance plan. An employee who wants only term insurance can pay a premium equal to the mortality and expense charges so that there is no accumulation of cash values. Naturally, an employee who wants to accumulate cash values must pay a larger premium.

Under the second approach, there are actually two group insurance plans—a term insurance plan and a universal life insurance plan. An employee who wants only term insurance contributes to the term insurance plan, and an employee who wants only universal life insurance contributes to the universal life insurance plan. With this approach, an employee purchasing universal life insurance must make premium payments that are sufficient to generate a cash-value accumulation. Initially, the employee may be required to make minimum premium payments, such as two or three times the cost of the term insurance. If an employee who has only the term insurance coverage later wants to switch to universal life insurance coverage, his or her group term insurance certificate is canceled, and the employee is issued a new certificate under the universal life insurance plan. An employee can also withdraw his or her cash accumulation under the universal life insurance plan and switch to the term insurance plan or can even have coverage under both plans. Typically, an employee is eligible to purchase a maximum aggregate amount of coverage under the two plans. For example, if this amount is three times annual salary, the employee can purchase term insurance equal to two times salary and universal life insurance that has a term insurance amount equal to one times salary.

Underwriting
Insurance companies that write group universal life insurance have underwriting standards concerning group size, the amounts of coverage available, and insurability.

Currently, most group universal life insurance products are limited primarily to employers who have at least 100 or 200 employees. However, a few insurers write coverage for even smaller groups. Some insurance companies also have an employee percentage-participation requirement, such as 20 percent or 25 percent, that must be satisfied before a group can be installed. Other insurance companies feel their marketing approach is designed so that adequate participation will result and, therefore, have no participation requirements.

Employees can generally elect amounts of pure insurance equal to varying multiples of their salaries, which typically start at one-half or one and range as high as three or five. There may be a minimum amount of coverage that must be purchased, such as $10,000. The maximum multiple an insurance company will offer is influenced by factors such as the size of the group, the amount of insurance provided under the employer's basic employer-pay-all group term insurance plan, and the percentage participation in the plan. In general, the rules regarding the amounts of coverage are the same as those that have been traditionally applied to supplemental group term life insurance plans. The initial premium, which is a function of an employee's age and death benefit, is frequently designed to accumulate a cash value at age 65 equal to approximately 20 percent of the total death benefit.

Other approaches for determining the death benefit may be used, depending on insurance company practices and employer desires. Under some plans, employees may elect specific amounts of insurance, such as $25,000, $50,000, or $100,000. Again, an employee's age and the death benefit selected determine the premium. Some plans allow an employee to select the premium he or she wants to pay. The amount of the premium and the employee's age then automatically determine the amount of the death benefit.

The extent to which evidence of insurability is required of individual employees is also similar to that found under most supplemental group term life insurance plans. When an employee is initially eligible, coverage is usually issued on a guaranteed basis up to specified limits, which again are influenced by the size of the group, the amount of coverage provided under the employer's basic group term insurance plan and the degree of participation in the plan. If an employee chooses a larger death benefit, simplified underwriting is used up to a second amount, after which regular underwriting is used. Guaranteed issue is often unavailable for small groups; underwriting on the basis of a simplified questionnaire is used up to a specific amount of death benefit, after which regular underwriting is used.

With some exceptions, future increases in the amount of pure insurance are subject to evidence of insurability. These exceptions include additional amounts resulting from salary increases, as long as the total amount of coverage remains within the guaranteed issue limit. A few insurance companies also allow additional purchases without evidence of insurability when certain events occur, such as marriage or the birth of a child.