Basic Group Term Life Insurance Rates

Sample Group Life Premiums by Volume Apply to All Insured Members

Nov 5, 2009

As these sample premiums show, even employees in poor health can pay the same low group term life insurance premium rates billed to fit young group members.

In general, calculating rates for Basic Group Term Life Insurance requires much less medical underwriting than pricing premiums for individual life insurance policies.

Why? Group insurance covers a group of employees of an employer, or a set of members where the group policyholder is an association or union. Insurance companies will reject a group benefits application where members belong to a group principally to obtain life insurance.

Most group policyholders provide Basic Group Term Life to all their members, thus expanding the pool of covered persons. In contrast, healthier persons less likely to need life insurance often choose to defer buying an individual policy or will opt out of an Optional Group Term Life Insurance plan (also called Voluntary Group Life Insurance).

Also, the amount of group life insurance often reduces at specific ages or terminates altogether. In US group contracts, basic group life amounts reduce by 35% at age 65 and end at age 70. Canada has less stringent age discrimination legislation, where basic group life coverage typically reduces by 50% at age 65 with an age 70 termination.

Medical Underwriting by Group Size

Still, detailed medical evidence of insurability may be required from individual members belonging to small groups of less than 10 lives. In these cases, insurability risks can be extremely high – especially where applicants include small business owners in poor health.

For larger clients, group underwriters sometimes impose a non-evidence maximum on basic life insurance amounts for specific classes of group members like executives or owners. Individual members must provide satisfactory health evidence for any amount greater than the non-evidence maximum.

Factors Used to Calculate Group Term Life Rates

Actuaries calculate rates for an insurance company’s Basic Group Term Life underwriting manual based on group-level factors such as the group’s size, turnover rate, financial strength, member age statistics and the risk-level of the group’s industry. For example, an employer in the mining industry can expect significantly higher life insurance rates than an employer in the white-collar banking industry.

Sample Calculation for Basic Group Term Life Rates

Consider an international marketing company with 300 employees that requests a Basic Group Term Life Insurance premium rate quote.

The example group has 3 distinct classes of employees. Executives receive a flat $400,000 in coverage, while salespersons are insured for 3 times their annual earnings up to a maximum of $300,000. Coverage for support staff employees is 1 times earnings up to a maximum of $100,000. Any insurance amount over $150,000 is subject to health evidence.

Based on employee data for the sample marketing company and calculations that apply factors from the insurance company’s underwriting rate manual, the group’s rate per $1,000 of Basic Term Life Insurance is:

Regardless of class, these same composite rates are used to calculate premiums for all group members. An executive insured for $400,000 has a $76 monthly premium (annual premium is $912). A salesperson covered for $200,000 of Basic Term Life costs $38 per month ($456 per year). An administrative support person whose annual earnings are $50,000 will be billed at $9.50 monthly ($114 annually). The premium amount depends on volume of insurance, not the employee’s class.

Calculating Premiums Using Total Group Life Volume

If the total volume of basic life insurance for the 300-employee group is $47.5 million, then the total monthly premiums for Basic Group Term Life Insurance are:

Experience-Rated Renewal Premiums

Another key difference between group life and individual term life coverage is the fact that Basic Group Term Life Insurance rates are only guaranteed for a relatively short initial period. This is typically one year from the group policy effective date, although rate guarantee periods can range from 4 months to 5 years.

Because Basic Group Term Life renews each year, insurance company group underwriters are responsible for developing renewal rates adjusted for adverse claims experience. So if a group incurred a high percentage of life claims in relation to their paid premiums, group underwriting would assign an experience rating increase to help recuperate thee claims losses.

Typically, group underwriters closely revisit each group’s size, turnover, claims history and member age data to support their renewal rate decisions.

Sample Basic Group Term Life Renewal Premiums

Consider the sample marketing company at renewal. If first year claims experience is poor with $100,000 in death claims, the insurance company could request a 50% increase as its renewal action. This will result in new rates equal to $0.275 monthly and $3.42 annually per $1,000 of Basic Group Term Life Insurance.

Assuming that the group life volume remains at $47.5 million, billed premiums would jump to:

At subsequent renewals, group underwriters will assess whether further rates increases are needed.

The copyright of the article Basic Group Term Life Insurance Rates in Life Insurance is owned by Daniel Workman. Permission to republish Basic Group Term Life Insurance Rates in print or online must be granted by the author in writing.