Group 'B': Problem-solving/case studies (120=20)

6. Read the case situation given below and answer the questions that follow:

Various types of groups can be covered under the group insurance mechanism. The most common group consists of employees of a single employer. Other possibilities are employees of multiple employers, members of a professional association, or members of labor unions. In all such groups, the employee chooses his or her beneficiaries. Debtor- creditor groups form a distinct type of group where there is typically some required evidence of insurability and where the creditor is the beneficiary of the insurance. Other groups, such as multi-level sales associations, students or parents of students, members of clubs or other

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organizations, purchasers of certain items such as cars, can take advantage of group insurance administrative efficiency, but normally require some evidence of insurability for members to be covered, since in effect, such groups can be open to anti-selection and it is difficult to ascertain the mortality risk.

Group insurance typically consists of one-year renewable term life insurance that pays a fixed benefit upon the death of the employee. There are usually no exclusions for the basic life cover other than for suicide in the first year of cover. At the end of the coverage year, the insurance automatically renews without employees having to provide evidence.

The availability of various supplementary riders to the basic life cover makes the group scheme even more attractive and valuable to employees. Insurers are often offering a few or all of the following riders: accidental death cover (ADB); critical illness (CI) cover; accident only or accident-and-sickness Total and Permanent Disability (TPD) cover which can provide benefits either as a lump-sum or over several years; and some partial disability benefits (containing schedules of benefits per event, such as for the loss of one hand). The conditions and exclusions vary by type of rider. The CI and disability riders may be either of an additional payment kind or may accelerate (or prepay) the base life insurance cover. The definition used in TPD is typically very strict, such as the inability to earn any income for the remainder of a lifetime.

For a modest increase in the group premium, a terminal illness benefit feature is also sometimes included that prepays the sum assured when it has been ascertained that the life insured has fewer than six months to live. Finally, insurers are offering health riders (e.g. daily hospital allowance) and savings or pensions products. Whatever riders are chosen, the actuary should notice regulations that place limits on the portion of the premium use to pay for riders.

Questions:

a) Why group scheme is useful to employer.

b) Discuss the features of term life insurance?

c) List out the riders for different types of insurance and what is

theirs impacts on rate of the premium.

d) Give the reasons why exclusions are included in life insurance policies