The Insurance Buying Guide: Group Coverage
Many people have at least a small amount of disability income insurance through benefits offered by their employers. These group disability income policies (like group life policies) are underwritten on very liberal terms.
Policies usually are provided without any reference to an individual's medical information. Most insurance companies, however, will require that a certain number of employees participate in a group plan (such as 10, 25, etc.) for that plan to be issued without evidence of insurability.
Generally, you're required to provide information regarding your address, social security number and certain work-related information.
The insurance company will concentrate on such group factors as occupational duties, industry type and the amounts of disability income being offered. Due to the nature or risk of an occupation, the insurance company may limit or refuse to write group disability income coverage for certain groups -- such as for the mining industry, the lumber industry, the entertainment industry, etc.
Group disability coverage usually will be limited to not more than 70 percent of your earned income and subject to a low maximum benefit -- such as $1,000 or $2,000 per month for a year.
Because there is no medical underwriting involved with group cases, the underwriter's primary job is to protect against overinsurance or large amounts of coverage and adverse selection against the insurance company. Adverse selection occurs when an insurance policy encourages people with the highest risk profiles to use the coverage -- and encourages those with lower risk profiles to find more cost-effective insurance.
To avoid adverse selection, the insurance company may limit the amount of coverage offered, decline to write the group policy at all or offer the coverage on a non-occupational basis. Non-occupational coverage will not offer benefits for work-related disabilities.
Although not group insurance, strictly speaking, association coverage -- offered to members of a trade association or other group -- has some of the same underwriting characteristics as group coverage. Association coverage might be described as individual policies administered as group insurance.
Most association plans require some medical underwriting or what is sometimes referred to as simplified or progressive underwriting. Association underwriting may take the form of three or four medical questions asked of the individual. Due to the size of the association membership, relatively minor medical problems may be overlooked and policies issued.
Nevertheless, even with simplified underwriting, it is possible for a member to be declined for the insurance -- unless the association offers a guaranteed-issue plan.
In addition, the underwriting procedure is simplified by the fact that there are limits as to the amount of coverage that may be issued, as well as the length of the elimination and benefit periods. There is also no need to occupationally classify association members, since they all have essentially the same occupation, which is normally low risk.
Premiums for association coverage normally are banded by age and amount. For example, everyone between the ages of 25 and 30 pays the same premium for a 30-day EP and a $1,000 monthly benefit payable to age 65. From age 31 to 35, a new band of premiums would be used, and so on.
Another underwriting consideration with regard to association coverages pertains to the place where the association member conducts his or her business. Normally, individuals who work out of their homes cannot qualify for disability income coverage because it is difficult to determine if, in fact, they do become disabled. Their workplace is also their recovery place -- and, thus, a conflict arises.
Often, the underwriter simply may decline to offer this type of association any coverage at all.
