The only contract issued in a group term life plan is between the employer and the insurer. This is called the master policy and it is the only contract required regardless of how many employees are covered by the plan. The master policy states the contractual relationship between the policyholder (the employer) and the insurance company.
Each employee, the individual insured, is issued a certificate that provides essential information such as who is covered, when the coverage takes effect, how long it lasts, the amount of insurance provided, the claims procedures, etc. Typically, the certificates are included in the announcement booklet distributed to the insureds at the time that a group insurance plan is installed.
The master contract will usually provide that the insurer cannot refuse to renew the contract as long as the employer wishes to continue coverage and pays premiums. (However, it is true that the insurer may increase premium rates to the point where, for all practical purposes, the right to renew is not of any value.) The insurer will also provide that, in the master contract, if the number of employees drops below a specified amount (e.g., ten employees), the plan may be canceled.
Typical clauses found in master contracts also include:
- Adjustment in premiums clause – If an employee’s age is overstated, the employer will receive a refund. If the age is understated, there is no change in coverage, but the employer must make up the difference in premiums.
- Incontestability clause – The policy is incontestable, except for fraud.
- Grace period – Coverage continues for thirty-one days after the premium is due.
- Claims limitation – The death benefit claim must be made within one year of the last premium paid for a deceased employee.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM