13.1 Characteristics of Group Insurance

Group life insurance is a single policy that covers multiple people, typically offered through employers or associations. Understanding the unique characteristics of group insurance is essential for the licensing exam.

How Group Insurance Works

Group life insurance is fundamentally different from individual insurance in its structure, underwriting, and administration.

The Master Contract

In group insurance, the insurance company issues a master contract (or master policy) to the group policyholder, typically the employer.

Key Differences from Individual Insurance

Exam Tip: The certificate of insurance is NOT the actual policy—it's a summary document. The employer holds the master contract.

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Employer vs. Employee Contributions

Group life insurance plans can be structured in different ways regarding who pays the premiums.

Contribution Types

Why Participation Matters

High participation rates are important for:

• Avoiding adverse selection: Ensures healthy and unhealthy employees both participate
• Spreading risk: Larger pools create more stable risk
• Lower per-person costs: Administrative costs spread across more people
• Meeting insurer requirements: Insurers set minimum participation thresholds

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Group Underwriting Principles

Group insurance uses different underwriting criteria than individual insurance.

Group Characteristics Evaluated

Key Group Underwriting Principles

1. Insurance is incidental: The group must exist for purposes other than obtaining insurance
2. Flow of members: New members joining and old members leaving maintains fresh risk pool
3. Automatic determination: Benefit amounts determined by formula, not individual selection
4. Third-party administration: Employer handles enrollment, reducing insurer costs

No Individual Selection

Coverage amounts in group plans are typically determined by:

• Multiple of salary (e.g., 1x, 2x, or 3x annual salary)
• Job classification (executives vs. hourly)
• Flat amount for all employees
• Years of service

This prevents employees from selecting coverage amounts based on their own health status.

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Experience Rating

Experience rating adjusts group insurance premiums based on the group's actual claims history.

How Experience Rating Works

Experience Rating Factors

For larger groups, the insurer considers:

• Prior years' claims experience
• Number of claims
• Severity of claims
• Trend expectations
• Administrative costs
• Risk charges

Impact of Experience Rating

Exam Tip: Experience rating is more significant for large groups. Small groups may have limited credibility in their claims experience, so insurers rely more on manual rates.

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Key Takeaways

• Group insurance uses a master contract held by the employer, with certificates given to employees.
• Noncontributory plans (employer pays all) require 100% participation; contributory plans typically require 75%.
• Group underwriting evaluates group characteristics rather than individual health.
• Coverage amounts are automatically determined by formula to prevent adverse selection.
• Experience rating adjusts premiums based on the group's actual claims history.
• Groups must exist for purposes other than obtaining insurance.

Standalone Exam Application Drill

This section is part of the rebuilt standalone New Hampshire Life & Health Insurance (State) guide, so do not treat it as background reading. The official outline expects you to use this topic in mixed questions, where a general concept and a state-specific or exam-specific rule may appear in the same fact pattern.

How this topic is tested

A typical question will not ask for a vocabulary definition. It will describe a client, applicant, insured, licensee, consumer, property owner, transaction, policy, claim, disclosure, office practice, or regulator action. First classify the topic under National Life & Health Portion: Chapter 13: Group Life Insurance. Then decide whether the issue is a product/coverage rule, a licensing or conduct rule, a contract/document rule, a timing rule, or a remedy/penalty rule. That classification keeps you from picking an answer that sounds true but belongs to a different domain.

Review move

When you miss a practice question from this section, write one sentence in this format: “The trigger fact was ___; the rule was ___; the exception or trap was ___; the correct result was ___.” This converts the section into a usable exam checklist rather than a paragraph you merely reread. If the missed question involved a number, deadline, disclosure, form, coverage condition, ownership status, or regulator authority, make that fact a flashcard.

Final self-check

Before moving on, you should be able to explain the section title in plain English, name the main rule without looking, identify one misleading answer choice, and apply the rule to a scenario that changes one fact. If you cannot do those four things, reread the core text and answer the embedded quiz before continuing.