Group Insurance Fundamentals and General Provisions
The group contract model
Group insurance is built on a master contract between an insurer and a policyholder - usually an employer, association, or trustee - that covers a defined class of persons. Covered individuals receive a certificate of coverage, not the master policy itself. This distinction drives most exam questions: the employer holds the contractual rights, while the certificate is only evidence of coverage.
Key concepts to master
- Eligibility and classes: Insurers underwrite the group, not each person. Insurers require minimum participation (often a percentage of eligible employees or a minimum headcount) and may require a minimum employer contribution to limit adverse selection.
- Actively at work provision: Coverage generally begins only when the employee is actively at work; an employee on leave may be delayed.
- Probationary and waiting periods: A probationary period runs from hire before eligibility; a waiting period can also apply after enrollment.
- Adverse selection controls: Late entrants may face evidence of insurability; open enrollment limits underwriting.
- Contract provisions: Grace period, incontestability, entire contract clause, and the insurer's right to amend the master policy with notice.
- Experience rating: Premiums reflect group claims experience, administrative costs, and reserves; small groups may be pooled or community rated.
Traps
Questions often swap the certificate holder (employee) with the policyholder (employer). Another trap: confusing probationary periods (before eligibility) with waiting periods (after election). Also watch for the misconception that each employee is individually underwritten - group underwriting focuses on the group as a whole.
Worked example
An employer hires an employee on January 15. The plan has a 30-day probationary period and coverage begins the first of the month following eligibility. The employee becomes eligible February 14, and coverage starts March 1. If the employee is on unpaid leave on March 1, the actively-at-work rule can delay coverage until return.
Rule of thumb
Identify who holds the contract (employer), who holds the certificate (employee), and which timing rule applies (probation, waiting, active-at-work) before answering.