Operational management of group life assurance

Misfortune can take many shapes or forms throughout an individual’s lifespan. It can be the loss of property through fire or burglary, premature death, loss of or damage to vehicle through vehicular accident, injury or disability through vehicular accident etc.

In many instances, the aftereffects of these misfortunes cannot be borne by the person concerned, and so the insurance company is prepared to assume the burden of these consequences in exchange for a determined payment for the risk undertaken.  Those who utilise this service are mindful of the fact that such misfortunes can occur, and are willing to make contributions to a fund, called premiums, to secure the right to be compensated for the consequences of the misfortunes should they befall them.

This underlies the theory of insurance in general. It is a fall-back plan or fail-safe option in case of any eventuality as listed above.

Life Insurance

The risk of death is unavoidable, and is especially an economic threat if premature, when an individual may be exposed to heavy financial responsibilities, yet has not had the time to accumulate wealth to offset the financial needs of survivors. Life insurance provides a tool for risk management, a process for dealing with the risk of life. It is an insurance company’s promise to pay an individual’s beneficiary a specific amount of money when he or she dies in exchange for periodic payment of premiums. This can provide the individual with a peace of mind knowing that his or her family is financially protected no matter what happens to him or her.

Life assurance can simply be described as any policy of insurance which may basically be used either for the purpose of Death Protection (otherwise referred to as Life Protection) or Investment purpose or a combination of both death protection and investment purposes.

Life assurance usually involves human lives, unlike the non-life insurance business which primarily has to do with inanimate subject matter such as property, laptop and household contents etc.

When a life assurance policy is used for death protection purpose, it means that the benefit under the policy (which is also known as the sum assured) is to be payable when the life assured under the policy passes on within the duration of the life assurance policy. The life assured is the person on whose life span, the life assurance policy depends. For every life assurance policy, there must be at least one life assured.

On the other hand, when a life assurance policy is used for investment purpose, it means that the benefit under the policy is payable on survival by the life assured at maturity of the policy term. This type of benefit may be referred to as Maturity Benefit.

Furthermore, when a life assurance policy is used for both death protection and investment purposes, it means that the benefit under the life assurance policy is to be payable either upon the death of the life assured or when the life assured survives the policy term. Thus, the payment of the benefit (sum assured) shall be payable upon whichever of the two events (death or survival of the life assured) happens first. Therefore, if the life assured dies within the policy duration, the policy benefit is payable to the named beneficiary or if he survives the policy term, the benefit is payable to the life assured himself or herself when a life assurance policy is used for both death protection and investment purposes.

This is made possible as long as the owner of the life assurance policy (life assured) has been paying the premiums at agreed intervals to the insurance company. The premium may be payable as a single premium in lump sum in advance, payable only for a fixed number of years, or payable at a regular interval throughout the policy term.

A very unique feature of a life assurance policy is that it is a type of insurance contract which pays out a certain sum of money known as the sum assured when the life assured passes away within the policy duration. Thus, a financial estate is created for the owner of the policy from inception once he pays the first premium and subsequently pays the renewal premium as and when it is due.

There are exceptions to this in a couple of life assurance policy types; namely Term and Pure Endowment Assurance Policies. In a term assurance policy, the benefit is only payable when the life assured dies within the policy duration. Thus, if the life assured survives the policy duration, no benefit is payable under the term assurance policy. For a pure endowment policy, the benefit is payable when the life assured survives the policy duration. This means that a pure endowment is the opposite of a term assurance in the sense that the life assured is not expected to die within the policy duration for the benefit to be payable. We shall get to know the scope of cover under each of these two policy types.

The Legal Principles of Insurance:

The legal principles of insurance are the principles which govern the practice of insurance as a discipline or contract. There are six legal principles of insurance, these include –

1) Utmost good faith (which may also be known as Uberrimea fidei).

2) Insurable interest

3) Proximate cause

4) Indemnity

5) Subrogation

6) Contribution

1. UTMOST GOOD FAITH (UBERRIMEA FIDEI)

Utmost good faith as a legal principle of insurance, states that the two parties to an insurance contract must disclose all relevant information relating to the contract to each other without necessarily being asked for. The two parties to an insurance contract as earlier stated are the – Insurer and Insured. Thus, both the insurer and insured both have an obligation in an insurance contract to act with utmost good faith without being coerced to do so.

The relevant information in every insurance contract is referred to as the ‘material fact’.

The principle of utmost good faith may also be known as Uberrimea fidei and it is considered as one of the fundamental principles in all insurance contracts.

Generally, the principle of utmost good faith compels both the insured (or insured person as the case may be) and insurer (or insurance company as the case may be) to willingly disclose to each other all material facts relating to the insurance contract. However, in practice, the principle of utmost good faith is believed to rest more on the insured than the insurance company as the insured is assumed to have the possession of most of the relevant facts relating to the subject matter of the insurance contract. Therefore, the duty of disclosure of the utmost good faith rests very heavily on the insured and thus, he or she must at all times be willing to disclose them without being specifically asked to do so. Besides, the insurance company will rely so much on these relevant facts or information when assessing the risk being proposed for insurance in order to enable the insurance company determine terms, other conditions and the applicable premium rate for the insurance contract.

However, the fact that the duty of utmost good faith rests heavily on the insured does not prevent the insurance company from disclosing any relevant material fact relating to the risk proposed for the insurance which is in its possession. A failure on the part of either insured or insurance company to disclose any of these material facts, may give the aggrieved party the power to exercise his rights for breach of utmost good faith. The remedies for breach of utmost good faith are three –

1. a) To repudiate the insurance contract from ab-initio (i.e. from the beginning)
2. b) To sue for damages in addition to (a) above.
3. c) To waive his rights under (a) and (b) above and thereby allow the insurance contract to continue without any hindrance to it.

These remedies shall be discussed in more detail later in the Chapter under the Duty of Disclosure.

The Duty of Disclosure

The duty of disclosure may be defined as a positive duty of the proposer in an insurance contract to disclose clearly, visibly and accurately without being asked for all material facts relating to the risk proposed for insurance. The duty of disclosure is seen as a positive and not a negative duty. It relates to matters of facts and not matters of opinions. Thus, it has nothing to do with the opinion(s) of the insured person in deciding whether or not to disclose a particular material fact. Therefore, where the proposer is in a state of doubt as to what really constitutes a material fact, he or she should disclose it. The proposer is the name used for the insured when the insurance contract is still under negotiation.

The duration of the duty of disclosure commences right from the time a proposal is being made for the insurance contract by the proposer and continues until the perfection of the contract through to the acceptance by the insurance company. For insurance contracts, which are renewable say at yearly interval, the duty of disclosure will continue at each renewal period especially for any material changes in the risk proposed for insurance.

Some examples of duty of disclosure in few insurance contracts are as below:

1. In a life assurance contract – the risk proposed is the life to be assured which is otherwise known as the life assured. Therefore, the proposer is expected to disclose all relevant information he knows concerning his:

Health status;

Occupation;

Hobbies and past times etc.

2. In a motor insurance contract – the following material facts are expected to be disclosed by the proposer:

The true value of the car being proposed for insurance;

Nature of use in which the car is to be put;

The engine capacity of the car;

The year of manufacture etc.

3. In a fire insurance contract for a building – the following material facts are expected to be disclosed by the proposer:

The location of the building;

The true value of the building;

Some house-keeping measures to be put in place;

Some security apparatus or measures to be in place etc.

4. In Engineering insurance contract – the following material facts are expected to be disclosed by the proposer:

The location of the project;

The name of the contractor(s);

The claims history (if any);

Planned schedule of work with estimated values etc.

Material Facts

A material fact may be defined as a fact which would affect the judgment and decision of a prudent underwriter in determining whether or not he would enter into an insurance contract with the proposer and at what premium rate, as well as other terms and conditions to apply.

However, it should be noted that not all facts need to be disclosed, even though they may be considered as being material, if they fall within any of the following categories:

Facts which may not be Disclosed

1) Facts which do not materially affect the risk of loss.

2) Facts which lessen the risk of loss.

3) Facts which are not known to the insured.

4) Facts which the insurance company had already known about the risk proposed for insurance.

5) Facts which the insurance company had waived for the proposer.

6) Facts of law.

7) Facts which the insurance company ought to have known.

8) Facts of public knowledge.

1. INSURABLE INTEREST

Insurable interest is the legal right to insure which arises out of the financial relationship recognized at law between the insured and subject matter of insurance, whereby the insured benefits from non-occurrence of any of the events insured against and would be prejudiced by their occurrence.

What insurable interest stands for is establishing that the proposer has a legal right to take up a valid insurance contract, and once the insured is able to prove that he or she has a legal financial interest in the subject of matter of insurance which would be jeopardized by the happening of any of the events or contingencies insured against, then there is no issue regarding whether or not an insurable interest exists.

Generally, depending on the classes or lines of the insurance business, insurable interest is required to exist at different times or periods. For example, in the non-life (general) insurance business, insurable interest is required both at the inception of the insurance contract (i.e. at the beginning of the insurance policy) and at the time of claim. Therefore, for all general insurance contracts, insurable interest must be in existence both at the commencement of the insurance contract and at the time of the claim.

In the life business, insurable interest is only required at the beginning of the life insurance contract. Thus, insurable interest is not needed at the time of the claim (either death or maturity claim).

In marine insurance, insurable interest is only required at the time of claim. Thus, in marine insurance, insurable interest must only exist at the time of claim and not at the beginning of the marine insurance contract.

The principle of insurable interest is very important in all contracts of insurance – as there is no valid insurance if there is no insurable interest. As a matter of fact, what the insured receives from the insurance company following a genuine and valid claim is compensation based on the financial loss or interest actually suffered due to the claim (i.e. the insurable interest of the insured in the subject matter of insurance).

Some General Examples of How an Insurable Interest may exist in Insurance Contracts

Below are some of the examples of how an insurable interest may exist in insurance contracts:

1. A man has an insurable interest in his motor vehicle.
2. A man has an insurable interest in his property.
3. A man has an insurable interest in the contents that belong to him in a rented apartment.
4. A man has an insurable interest in his laptop.
5. A man has an insurable interest in his own life.
6. A man who has been appointed as a Trustee of a certain property has a valid insurable interest in the trust property.

1. PROXIMATE CAUSE

This is defined in the case of Pawsey Vs. Scottish Union and National (1907) as an active, efficient cause that sets in motion a train of events which brings about a result without the intervention of any force started and working from a new and independent source.

Proximate cause is the legal principle of insurance which governs the event(s) or contingency(ies) that is/are covered under the insurance contract. Therefore, if a claim occurs as a result of an event or contingency which was not covered in the ordinary course of the insurance contract (which is otherwise referred as the insurance policy), it means that the insurance company is not legally liable for such a claim and as such, the claim should not be entertained. Also, the insurance company is not legally liable to pay the sum insured of an insurance policy for a claim where there is break in the chain of causation.

In some instances, the insurance companies still do make claims payments even when they are not legally liable to pay the claims. This instance in insurance is referred to as the ‘Ex-gratia payment’. An ex-gratia payment may be described as a payment made for a claim by an insurance company when the insurance company is not legally liable to the claim (i.e. loss).

Some reasons insurance companies do make the ex-gratia payments are –

1. i) To relieve the claimants of financial hardship which may have befallen him or her as a result of the claim.
2. ii) To promote the goodwill of the insurance industry.

iii) To sustain good business relationship with the claimant. 

1. INDEMNITY

This is the exact amount of compensation paid to the insured at the time of a valid claim under an insurance contract. It may equally be described as the exact financial compensation which is obtainable by the insured from the insurance following a valid claim. If we would recollect, our definition of insurance under the section Introduction to Insurance was – ‘as a legally binding agreement or contract, insurance may be described as an agreement between two parties, namely the insured and insurer, whereby the insured having paid a consideration (which is known as the premium), the insurer agrees to compensate him or her for any losses (genuine losses) which may occur during the period of the insurance cover’. Thus, indemnity is the compensation which the insurer has agreed to pay to the insured for all genuine losses as highlighted in bold above.

Therefore, the principle of indemnity places the insured to the exact financial position he or she was immediately prior to the occurrence of the loss. By so doing, it means that no insured is expected to make profit by the happening of the loss under an insurance contract as he or she is only to get the exact financial loss suffered.

Generally, all contracts of non-life insurance business (such as motor, engineering and property insurances) are said to be contracts of indemnity as the exact financial loss is measured before the insurance company would make the claim’s payment to the insured, whereas life assurance contracts are not contract of indemnity.

Methods of Providing Indemnity to the Insured

Indemnity may be provided in any of the following methods or ways to the insured:

1. i) By cash/cheque
2. ii) Through replacement

iii) Through repairs

1. iv) Through reinstatement

We shall now explain each of these four ways of providing indemnity to the insured in simple language:

1. i) By cash/cheque: Under this method of indemnity provision, the insured is issued a cheque for the assessed loss amount (as agreed to by the insured) by the insurance company for the compensation for the reported loss. These days, bank transfers for the settlement of reported and assessed losses will equally fall in the category of cash/cheque method of indemnity provision. With the cashless policy of most countries around the globe, indemnity by cash is no longer visible.

As an example, if a car which was worth say ₵ 500,000 was insured for 12 months effective July 1, 2019, but was stolen on July 5, 2019. After deducting an excess of 10% (₵ 50,000), the assessed loss amount payable is  ₵ 450,000. The settlement or payment of ₵ 450,000 by the insurance to the insured either by cheque or through bank transfer is a method of indemnity provision by cash/cheque.

An excess is each and every amount of a claim which is borne by the insured in order to make him or her act reasonably as if he or she was uninsured. It may be expressed either as a percentage or flat amount of the loss figure. In the example stated above, it was expressed in percentage.

1. ii) Through replacement: Under this method of indemnity provision, the subject matter of insurance (that is, the property or object) which was insured and has been damaged or lost shall be replaced by the insurance company. No cash shall be given to the insured directly, rather the insurance company would replace the damaged or lost property for the insured. Where the indemnity through replacement is for a damaged property, the insurance company shall have the custody of the damaged property immediately before or after replacing it. The damaged property in insurance is referred to as a Salvage. Replacement as a method of indemnity provision is mostly used in household insurance policies.

iii) Through repairs: Under this method of indemnity provision, the subject matter of insurance (that is, the property or object) which was insured and has been damaged shall be repaired by the insurance company for the insured. Just like in replacement as a method of indemnity provision, no cash shall be given to the insured directly, rather the insurance company would repair the damaged property for the insured. However, unlike in the replacement as a method of indemnity provision, there is no salvage available under the repair as a method of indemnity provision. Repairs as a method of indemnity provision is mostly used in engineering and motor insurance policies.

1. iv) Through reinstatement: Under this method of indemnity provision, the subject matter of insurance (that is, the property or object) which was insured and has been damaged shall be restored to its previous or former position by the insurance company for the insured. Reinstatement as a method of indemnity provision may often be confused with repairs, but they are not the same. Reinstatement is mostly used in building insurance policies.

1. SUBROGATION

This is the legal principle of insurance that allows a party to an insurance contract (usually the insurance company) who might have compensated the other party (the insured) for the benefit under the insurance policy under an obligation to do so, to stand in the place of the insured and avail himself of all the rights and remedies of the other party due from the negligent third party, whether the rights have already been enforced or not.

Subrogation is regarded as a corollary of indemnity in the sense that it operates to support the principle of indemnity, which states that the insured should only be paid the exact amount of the loss suffered. In other words, the operation or application of subrogation to insurance contracts help maintain the indemnity principle which ensures that no insured makes profit from the happening of a claim under an insurance contract.

Since the principle of subrogation operates to support the indemnity principle, it means that all contracts of non-life insurance business (such as motor, engineering and property insurances) are also contracts of subrogation, while life assurance contracts are not contract of subrogation.

If not for the operation of subrogation under the non-life insurance contracts, an insured would be able to claim from all the sources available to him or her (insurance company and negligent third parties inclusive) and thus making him or her receiving more than the actual amount of the financial loss suffered.

Subrogation will arise in the following case – If Mr. Lamptey while driving his car on a highway in Accra negligently hits the house of Mr. Yeboah which caused a certain damage to the house of Mr. Yeboah. Without any insurance in place, Mr. Lamptey should ordinarily be responsible to fix the damaged part of Mr. Yeboah’s house. But, supposing that Mr. Yeboah has an insurance on his property with Ghana Insurance Company and lodges his claim with the insurance company, then, after he is settled by Ghana Insurance Company, the insurance company can meet with Mr. Lamptey to reclaim what it has paid to Mr. Yeboah. When the insurance company reclaims from Mr. Lamptey, this in insurance is referred to as Subrogation right.

1. CONTRIBUTION

Contribution may be defined as the right of an insurer to call on other insurers who are similarly, but not necessarily equally liable to the insured upon the occurrence of a loss in respect of the same insured. Just like both the indemnity and subrogation, life assurance contracts are not contract of contribution. This means that the principle of contribution is only applicable to the non-life insurance business.

Furthermore, the same way the principle of subrogation supports the principle of indemnity in order not to make the insured receive more following a valid claim from an insured, the principle of contribution operates to support indemnity. Therefore, both subrogation and contribution are said to be corollary of indemnity.

Conditions Required for Contribution to Arise

The following conditions must be present before the principle of contribution will arise under the non-life insurance business:

1. i) There must be two or more insurance policies in force at the time of the claim (and these two or more insurance policies are contracts of indemnity).
2. ii) These policies must cover a common interest.

iii) These policies must cover a common peril which led to the loss.

1. iv) These policies must cover the same subject matter of insurance.
2. v) Lastly, each of these policies must be liable for the loss.

Types of Life Assurance –

Life insurance comes in different forms, as insurance companies try to stay ahead of the competition with different and innovative products. Some common forms of life assurance policies are:

1. Term life insurance – under this policy, the individual purchases a basic life insurance for a set period, say 20 years, and the insurer pays a lump sum to his or her beneficiaries should he or she die when the policy is in effect. This policy becomes less and less expensive across the duration of the policy. It covers you for a set amount of time and once that term ends, so does your policy.
2. Whole or Permanent life insurance – this type of policy lasts a life time and pays a benefit when the individual dies. It is more expensive, but has a savings component, called cash value, which builds up over time and can cater for other expenses.
3. Endowment Life Insurance – this is a life insurance contract designed to pay a lump sum after a specific term (on its ‘maturity’) or on death. Typical maturities are ten, fifteen or twenty years up to a certain age limit. Some policies also pay out in the case of critical illness.
4. Industrial Life Insurance – this refers to an insurance policy which provides insurance coverage to industrial workers for bigger amounts. Here a fixed amount is given in case of accident or death.
5. Mutual Life Insurance – Mutual offices are the life insurance companies with no shareholders. Every policyholder in the company is a member of the company and thus every person who has a life assurance policy with the company is regarded as a member of the mutual life office. In a mutual life office, all the divisible surplus which may arise from the actuarial valuation of their life portfolio (say on a yearly basis) is only to be shared among the with-profit policyholders.  There is another type of policyholders known as without-profit policyholders. This category does not share in the divisible surplus arising from the yearly actuarial valuation.
6. Group Insurance – this is a Life Insurance coverage provided to a group of people, often employees of the same company. It carries a lower cost than the policies offered to individuals.
7. Universal Life Insurance – this type of Life Insurance covers one for his or her whole life but gives more flexibility for the person to change the amount of life insurance he or she gets over time while still giving benefits across the person’s life.

Each of these policies is designed to address a particular set of circumstances that people may encounter.

Group Life Insurance

Group life insurance is offered by an employer or another large-scale entity, such as an association or labour organization, to its workers or members. It has a relatively low coverage amount and is typically offered as a piece of a larger employer or membership benefit package.

The Workmen’s Compensation Act 1987 of the Ghanaian Constitution makes it obligatory for all employers to make available funds to compensate any employee who becomes injured at the workplace.

Some organizations require group members to participate for a minimum amount of time before they are granted coverage, which is generally pretty basic.

For there to be a group life assurance, the members of the group life scheme must have been in existence for another common purpose aside the purpose of the life assurance.

Understanding Group Life Insurance

Group life insurance is a single contract for life insurance coverage that extends to a group of people. By purchasing group life insurance policy coverage through an insurance provider on a wholesale basis for its members, companies are able to secure costs for each individual employee that are much lower than if they were to purchase an individual policy.

Those receiving group life insurance coverage may not have to pay anything out of pocket for policy benefits. People who choose to take more-advanced coverage alongside it may elect to have their portion of the premium payment deducted from their pay check. Just as with regular insurance policies, insured parties are required to list one or more beneficiaries before the policy comes into effect. Beneficiaries can be changed at any point during the coverage period.

The typical group policy is for term life insurance, often renewable each year with a company’s open-enrolment process. This is in contrast to whole life insurance, which provides coverage no matter when you die. Whole life insurance policies are permanent, have higher premiums and death benefits, and constitute the most popular type of life insurance.

With group life insurance, the employer or organization purchasing the policy for its staff or members retains the master contract. Employees who elect coverage through the group policy usually receive a certificate of coverage, which is needed to provide to a subsequent insurance company in the event that an individual leaves the company or organization and terminates their coverage.

Group Life Insurance policy for Credit Companies

A Group Life Insurance policy can also be issued to a creditor or its parent holding company or to a trustee or trustees or agent designated by two (2) or more creditors, which creditor, holding company, affiliate, trustee, trustees or agent shall be deemed the policyholder, to insure debtors of the creditor or creditors.

For such policies, the debtors eligible for insurance under the policy shall be all of the debtors of the creditor or creditors, or all of any class or classes thereof.  The term “debtors” usually include:

(a) Borrowers of money or purchasers or lessees of goods, services or property for which payment is arranged through a credit transaction;

(b) The debtors of one or more subsidiary corporations;

The premium for the policy is paid either from the creditor’s funds, or from charges collected from the insured debtors, or from both. An insurer may exclude any debtors as to whom evidence of individual insurability is not satisfactory to the insurer. The amount of the insurance on the life of any debtor must at no time exceed the greater of the scheduled or actual amount of unpaid indebtedness to the creditor.

The insurance may be payable to the creditor or any successor to the right, title, and interest of the creditor. The payment reduces or extinguishes the unpaid indebtedness of the debtor to the extent of the payment and any excess of the insurance is payable to the estate of the insured.

Group Life Insurance policy for Labour Unions

A group life insurance policy can be issued to a labour union, or similar employee organization, deemed to be the policyholder, to insure members of the union or organization for the benefit of persons other than the union or organization or any of its officials, representatives or agents, subject to the following requirements:

(1) The members eligible for insurance under the policy are all members of the union or organization, or all of any class or classes thereof.

(2) The premium for the policy is paid either from funds of the union or organization, or from funds contributed by the insured members specifically for their insurance, or from both.

(3) An insurer may exclude or limit the coverage on any person as to whom evidence of individual insurability is not satisfactory to the insurer.

Requirements for Group Life Insurance

Group life insurance policies generally come with certain conditions. Some organizations require group members to participate for a minimum amount of time before they are granted coverage. For instance, an employee may need to pass a probationary period before being allowed to take part in employee health and life insurance benefits.

Coverage is normally only valid for as long as a member is part of the group. Once the member leaves, whether through resignation or firing, the coverage ends.

Group life insurance policies remain intact until insured parties are terminated or leave the group.

The premium for the policy is paid either from the employer’s funds or from funds contributed by the insured employees, or from both.

An insurer may exclude or limit the coverage on any person as to whom evidence of individual insurability is not satisfactory to the insurer.

Advantages and Disadvantages of Group Life Insurance

The biggest appeal group life insurance has for employees is its value for money. Group members typically pay very little, if anything at all. Any premiums are drawn directly from their weekly or monthly gross earnings. Qualifying for group policies is easy, with coverage guaranteed to all group members. Unlike with individual policies, group insurance doesn’t require a medical exam.

Importance of Group Life Policy for employees

• • There are readily available funds to take care of employees when accidents or deaths occur.
  • A group life policy helps employees plan financially as it takes care of unforeseen life events.
  • It improves employee commitment and loyalty as employees know their employers have their best interest at heart.
  • It also serves as a way to attract and keep the best employees in the organization.
  • The employees are given comfort by knowing their family will be assisted financially when they are no more.

 

Limitations of Group Life Policy

Low cost and convenience aren’t everything. Group life insurance generally comes with only basic coverage, which means it may not fulfil the needs of policyholders. That’s why experts say it should be treated as a perk and supplemented with a separate individual policy, rather than being seen as sufficient standalone coverage.

Another drawback is that the employer controls the policy. If an organization opts to terminate group life insurance—or a person decides to switch jobs—coverage usually stops. However, the former employee does have an option to continue coverage at the individual level. This means the policy is converted from a group life policy to an individual one, which comes with higher premiums. While many people may not want the greater cost, those who are otherwise uninsurable will benefit from the conversion, as a medical exam still would not be required.

Some organizations allow group members to purchase more coverage than basic life insurance. That extra voluntary coverage may make financial sense because even the added premium will still be based on the less-expensive group rate. That part of the policy also may be portable between jobs. Unlike the basic group policy, additional coverage often requires applicants to answer a medical questionnaire, but it may not require an actual physical exam. That could be a good option for people whose health issues might make it difficult to qualify for an affordable individual policy.

Typical Group Life Insurance Policies

1. FUNERAL INSURANCE

The objective of this plan is to insure the obligations of the member in the unlikely event of death. Most conditions of members as well as tradition require and impose financial obligations on the member in the event of death. This includes provision of coffin, donation to the family, transport arrangement and refreshment. This obligation can be insured under the Group Funeral Plan.

Benefits
The plan provides for the payment of funeral and related expenses on behalf of the member in the event of death. The benefits can be extended to cover parents, spouses and children. Benefits levels shall be objectively determined to reflect the expected financial obligations of the member.

COVER LEVELS:

There are two types of cover namely: the individual cover and family cover.

•  The individual cover includes the member and a maximum of six children
•  The family cover extends to the spouse and maximum of six children below the age of 21 years.

2. CORPORATE RISK

The objective of the plan is to provide employment benefits to employees by assuring them that in the unlikely event of death, a multiple of their annual salary will be provided to their spouse and children as replacement income to cushion the effects of death.

Benefits
Death benefit shall be a pre-determined multiple of each employee’s annual salary or a fixed sum according to a predetermined formula. Accidental injury benefit can be added as a rider to provide for payment of both permanent and temporary disablement as well as medical expenses claim arising out of an accident.

Premiums
Premiums shall be determined for the group and paid wholly by the employer or with contributions from the employees.

Underwriting requirements

Medical examinations are normally not required. But individuals whose benefits exceed an automatic cover limit to be determined for the group will be required to submit evidence of good health. The automatic cover limit will depend on the number of lives to be covered and the salary range.

Objective
The objective of this plan is to insure the obligations of the member in the unlikely event of death. Most conditions of members as well as tradition require and impose financial obligations on the member in the event of death. This includes provision of coffin, donation to the family, transport arrangement and refreshment. This obligation can be insured under the Group Funeral Plan.

Benefits
The plan provides for the payment of funeral and related expenses on behalf of the member in the event of death. The benefits can be extended to cover parents, spouses and children. Benefits levels shall be objectively determined to reflect the expected financial obligations of the member.

COVER LEVELS:

There are two types of cover namely: the individual cover and family cover.

• The individual cover includes the member and a maximum of six children
• The family cover extends to the spouse and maximum of six children below the age of 21 years.

3. CREDIT LIFE

Credit Life Policy is tailored for Financial Institutions or companies, which offer loan to clients. This is a single premium policy with a maximum term of 5 years.

PRODUCT DESCRIPTION

This provides the payment of death benefits on the death of the life assured or permanently and totally incapacitate. The cover will be applied for by the policyholder who would has been authorised by the life assured in a contract to apply for the insurance and to pay the premiums in respect of such insurance.

Sum Assured

The initial sum assured shall be the initial loan amount and thereafter shall be the balance. The basis of indebtedness shall be the balance outstanding which will allow for the reduction of the initial sum assured by all instalments which were due to be paid up to the date of death or total permanent incapacitation.

Scope of Cover

The Life Assured at the date of death or total permanent incapacitated should be 18 years and above but below 60 years.

4. GROUP FUNERAL PLAN

The objective of this plan is to pay a funeral benefit to the insured company as the claim which would have been the obligations of the employer in the unlikely event of an employee’s death.

Most conditions of employment as well as tradition require and impose financial obligations on the employer in the event of an employee’s death. This includes provision of coffin, donation to family, transport arrangement and refreshment for other staff members. This obligation can be insured under the Group Funeral Plan.

BENEFITS
The plan provides for the payment of funeral and related expenses on behalf of the employer in the event of an employee’s death. The benefits can be extended to cover parents, spouses and children.
Benefits levels shall be objectively determined to reflect the expected financial obligation of the employer.

PREMIUMS
Premiums are relatively low and depend on the average age of the group and number of employees to be covered. Medical examinations are not required.

RIDERS:
These are top ups that one can take in addition to the main policy one of which is the Personal Accident.

Personal accident:
Personal Accident has three main components. These are

•  Permanent Disability Cover: This seeks to provide the payment of a lump sum in the event of a covered member being permanently disabled as a result of an accident. The extent of the incapacitation is determined by a medical doctor and thus the payment is made on a pre-determined agreed scale of incapacitation.
•  Temporary Disability Cover: This also seeks to provide the payment of a weekly benefit up to a maximum of 52 weeks as a result of temporary disablement resulting from an accident. The maximum weekly benefit payable is the actual income of the person before the incapacitation.
•  Medical Expenses Cover: This provides cover for medical expenses arising out of an accident up to a maximum pre-determined figure.

5. GROUP TERM POLICY

This policy covers a group of people such as employees of an organisation or members of a society against death.

The policy is renewable annually. The sum assured payable on the death is either the annual salary or a multiple of that in the case of the insured. A flat amount is chosen if it’s a social group to represent each member.

Group Health / Medical Insurance

Group Insurance health plans provide coverage to a group of members, usually company employees or members of an organization. Group health members usually receive insurance at a reduced cost because the insurer’s risk is spread across a group of policyholders.

How Group Health Insurance Works

Group health insurance plans are purchased by companies and organizations, and then offered to its members or employees. Plans can only be purchased by groups, which means individuals cannot purchase coverage through these plans. Plans usually require at least 70% participation in the plan to be valid. Because of the many differences—insurers, plan types, costs, and terms and conditions—between plans, no two are ever the same.

Group plans cannot be purchased by individuals and require at least 70% participation by group members.

Once the organization chooses a plan, group members are given the option to accept or decline coverage. In certain areas, plans may come in tiers, where insured parties have the option of taking basic coverage or advanced insurance with add-ons. The premiums are split between the organization and its members based on the plan. Health insurance coverage may also be extended to the immediate family and/or other dependents of group members for an extra cost.

The cost of group health insurance is usually much lower than individual plans because the risk is spread across a higher number of people. Simply put, this type of insurance is cheaper and more affordable than individual plans available on the market because there are more people who buy into the plan. 

Importance of Group Medical Insurance

Why Organisations protect their employees’ health with a Group Health Insurance policy

• Boost Employee Retention – People value jobs that give them a sense of security. A group health insurance provides employees and their families enough financial security, as well as an overall sense of satisfaction that their employer actually cares about them.
• Financially secure them during Pandemics / Disease Outbreaks – During pandemics, financial security becomes of utmost importance given the downfall in economies and increasing pay cuts across sectors. Protecting one’s employees from treatment expenses that could arise is the least an organisation can do to ensure that they’re both financially and medically secure.
• Strengthen Employee Motivation – Happy employees make happy workspaces and evidently successful companies! It’s no surprise that the safer and satisfied employees feel, the happier and more motivated they’re likely to be!
• Protect them from Severe Health Conditions – Majority of illness hospitalization and death in a lot of countries are due to lifestyle-related diseases. A Group Medical Insurance provides an opportunity for organisations to safeguard their employees from the same, amongst other diseases; the earlier these issues are diagnosed, the earlier they can be treated and resolved.
• Enhance Employee Mental Wellbeing – Many employees are often affected by stress due to either financial pressure or other personal issues which can lead to lower productively levels at work too. A decent group health insurance plan will not only safeguard their savings but, also enhance their overall mental wellbeing with the right support.
• Tax benefits – One of the other major advantages of group medical insurance is the potential for tax benefits.

For an employer, the money paid toward monthly employee premiums is usually tax-deductible

For employees, premiums are paid with pre-tax amounts, which can reduce their taxable in-come

Other reasons for a Group Medical Insurance policy include:

• Immediate cover without any waiting period.
• No health check-up required.
• Cover for the best medical facilities.
• Cover for pre-existing diseases from day one.
• Wide cover range with no limit on diseases.
• Advantage of maternity benefit along with cover for new born baby expenses.
• Low premium in comparison to individual health insurance.

 UNDERWRITING

Underwriting in life assurance may be defined in any of the following ways:

1. i) As a process of determining whether or not to accept the risk proposed for life insurance and if the risk is to be accepted, charging an adequate premium and decide on the applicable terms and conditions.
2. ii) It may also be described as a risk appraisal technique put in place in selecting

lives that are insurable.

Underwriting is very key to insurance operations and all the definitions of underwriting mentioned above are equally applicable to general insurance practice. Underwriting in life assurance is classified into three types:

1) Non-medical underwriting.

2) Medical underwriting.

3) Financial underwriting.

1)   Non-medical underwriting

In life assurance, non-medical underwriting is the underwriting carried out on the lives

proposed for life insurance without the lives to be assured being medically examined. It

may equally be described as the underwriting decision taken only on the basis of the

proposal form completed by the lives proposed. Therefore, there is no need for the life proposed (or life assured as the case may be) to undergo medical examination once his or her sum assured proposed is within the non-medical underwriting limit.

In all contract of insurance, the completion of the proposal form is fundamental as it is the basis of all contracts of insurance (including life assurance).

2)   Medical underwriting

In life assurance, medical underwriting is a process carried out on the lives proposed for life insurance through medical examination selection of lives which are inferior to the mortality table from the group of lives proposed fore insurance, with a view of charging an extra mortality premium and/or impose certain special terms and conditions for the lives which are substandard but still insurable.

Therefore, when a life is proposed for life assurance and he or she is found to be inferior to the mortality table, he or she would be charged an extra mortality premium based on the degree of the extra risk being brought to the common pool.

Some examples of the medical risk factors that may affect the mortality component of the life assurance premium are:

1. a) Physical look and conditions of the life proposed.
2. b) The height of the life proposed.
3. c) The weight of the life proposed.
4. d) The abdominal girth and Chest circumference measurements.
5. e) The blood pressure measurement.
6. f) The proposer’s personal medical history.
7. g) The family history of the life proposed.
8. h) The proposer’s habit such as cigarette smoking and alcohol consumption.

In addition to the above medical risk factors, the following non-medical risk factors may also have significant negative effects on the life underwriting decision:

• Occupation of the life proposed.
• Foreign travel by the proposer.
• Other habits and games in which the life proposed is involved
• And other moral hazards.

3)  Financial Underwriting:

It is the underwriting carried on the financial capability of the life proposed. Usually, financial underwriting is only required for sums assured in excess of a threshold. Thus, financial underwriting is not required for every sum assured proposed by the proposer.

Financial underwriting where applicable performs two main objectives in life assurance underwriting and these are –

(i) To determine whether or not the sum assured proposed by the policyholder has a

positive correlation or bearing to the policyholder’s financial status.

(ii) It helps in determining the financial ability of the policyholder to pay the

applicable premium.

In Ghana, presently any sum assured from GHC 1 million (one million Ghana Cedis) is expected to be subjected to a financial underwriting.

The following are the typical financial underwriting documents when a financial underwriting is required:

(1)  A copy of a financial questionnaire to be duly completed by the proposer.

(2)  A copy of the loan agreement with the lender provided that the policy is relation to a

loan transaction.

(3) The bank account statement of the proposer (say at least in the last three to six

months).

(4)  A copy of the audited annual financial report if the life policy is in

connection with a registered company.

Objectives of Life Underwriting

The following are the objectives of underwriting in life assurance:

1. i) It helps to determine whether or not the risk proposed for life insurance is an average

life (i.e. a standard or normal life).

1. ii) It helps to charge a reasonable extra premium where the risk proposed is an under-

average life (i.e. a sub-standard or abnormal life).

iii) It also helps in coming up with imposition of appropriate terms and conditions in

relation to the degree of extra risk brought to the common pool.

1. iv) It prevents selection against the life insurance companies.

Non-medical underwriting in Practical Terms:

As previously explained, non-medical underwriting is the underwriting carried out on the lives proposed for life insurance without the lives to be assured being medically examined. Usually, there is a limit of sum assured which once exceeded, all the lives proposed with these huge sums assured would go for one or two or all of the medical examinations explained later. The limit of sum assured up to which no medical examination is required is referred to as – non-medical limit under individual life business and free cover limit under group life business.

Non-Medical and Free Cover Limits 

Non-medical limit 

The non-medical limit is the level of sum assured under the individual life business which does not require any medical examination or test before the underwriting decision is taken by the life insurance company. It may also be described as the level of sum assured for a life proposed which may be accepted by the life office only on the basis of the proposal form completed by the proposer.

A typical example of the medical underwriting guides for the individual life of a life insurance company is as shown below: 

Medical Underwriting Guides

(Individual Business)

 

SUMS ASSURED      (GHC)	UP TO AGE 45	AGE 46 AND ABOVE
Up to 100,000   100,001 – 120,000   120,001 – 140,000   140,001 – 160,000   160,001 – 180,000   180,001 Up wards	A   B   B + C   B + C + D   B + C + D + E   B + C + D + E + F + G	A (B above Age 49)   B + C   B + C + D   B + C + D + E   B + C+ D + E + F   B + C + D + E + F + G

 

 The medical examination interpretation of the alphabets used in the above medical underwriting guides are: 

1. Non-Medical (Personal Statement).
2. Ordinary Medical Examination.
3. ECG, 12 leads, before and immediately after adequate exercise.
4. Chest X-ray.
5. Haematology Studies, (HB, ESR, WBC) and Microscopic Urinalysis.
6. Blood Chemistry Studies comprising Fasting Blood Sugar, Cholesterol, Creatinine or Serum urea, SGOT, SGPT, and Triglycerides
7. HIV antibody test.

The non-medical limit in the above example is GHC100,000 and thus, each life proposed with a sum assured which is in excess of GHC 100,000 and depending on his or her attained age shall undergo the appropriate medical examination(s).

An example, a proposed whose age is 46 and proposing a sum assured of GHC 150,000 shall be required to undergo the following medical examinations – Ordinary Medical Examination, ECG, 12 leads, before and immediately after adequate exercise, Chest X-ray and Haematology Studies, (HB, ESR, WBC) and Microscopic Urinalysis. 

Free cover limit 

Free cover limit in technical terms means the same as the non-medical limit. However, while the non-medical limit is applicable to the individual life business, free cover limit is applicable to group life business (i.e. group life schemes).

Free cover limit may therefore be described as the level of sum assured in a group life scheme which would not be required to undergo any medical examination before underwriting decision is taken. Thus, medical examinations would only be required for members of the group life scheme with sums assured in excess of the stated scheme free cover limit.

Explanation of the various medical Tests and Reports 

1. i) Private Medical Attendants Reports (PMAR)

A Private Medical Attendant Report (PMAR) is strictly a private and confidential medical report obtainable from the proposed life’s usual medical doctor who must have been named by the proposed life while completing the proposal form. It consists of the medical history of the life proposed over the recent years with his or her usual medical doctor.

It may also be described as a set of health or medical questionnaires which has been designed by the life insurance companies and being sent to the usual medical doctor of the propose life for completion subject to the consent of the proposed life. The report is expected to be completed at a fee from the life insurance company to the medical doctor who is rendering the services. The private medical attendant’s reports (PMAR) usually is in two parts as stated below:

PART A 

Part A of the private medical attendant’s reports (PMAR) will comprise a letter to the proposed life’s usual medical doctor informing the doctor that he or she has been named by the proposer who happens to be his or her client in the proposal form (with the proposer’s full names stated) as the personal medical doctor. 

PART B

Part B of the private medical attendant report (PMAR) usually consist of some of the following questions which shall be required to be answered by the life assured’s usual medical doctor as they relate to the proposer.

1. a) How long have you known the proposer?
2. b) When last did he or she visit you?
3. c) Since when have you been his or her medical doctor?
4. d) Kindly provide the nature of sickness you may have treated him or her for the last time he or she visited your hospital?
5. e) How did he or she respond to the treatments administered on him or her?
6. f) Are there any additional information that may assist us in assessing the proposer? And so on.

In addition to the above usual questions, the doctor is also allowed to make use of additional notes if there are still some more vital information not yet asked about his or her client and the doctor considers them to be material information. 

Specimen Copy of the Letter of Part A of the Private Medical Attendant Report (PMAR)

Please find below a specimen copy of the letter usually sent by the life insurance company to the proposed life’s usual medical doctor for the private medical attendant report (PMAR) to aid our understanding of it:

Our Ref: QLAC /Life Ops/02/2019

26^th February, 2019

The Medical Director

A and B Hospital

Plot 148 Edward Kwame Avenue

Accra – Ghana

The proposed life’s full name

The proposed life’s address

The proposed life’s mobile line

The proposed life’s reference number with the doctor

 

Dear Sir/Ma,

 

LETTER OF REFERENCE FOR MEDICAL HISTORY – MRS. HEAVENS

We refer to above subject and wish to inform you that the above name client of yours has approached our life insurance company for a life assurance product. Mrs. Heavens has named you as her personal medical doctor and given us the authority to contact you for her medical history with your hospital, in order to assist us in forming our underwriting decision on her proposal.

We shall appreciate if you could give answers to the following questions on the second page of this letter which relates to your client and return same to us.

We assure you of the highest confidentiality of her medical reports.

Kindly find attached a copy of the authorization letter from your client, Mrs. Heavens, and shall expect your invoice for the fee for the services rendered to us on this report.

Thank you.

Yours faithfully,

For: QUALITY LIFE ASSURANCE COMPANY                                                                                                                                     

General Manager (Technical Operation) 

1. ii) Ordinary Medical Examination

Ordinary Medical Examination comprises the medical examination carried out on the proposed life on his or her height, weight, chest circumference, abdominal girth and pulse rate measurements as well as the blood pressure readings.

For the height and weight measurements, there are bands such that for every range of height, there is a corresponding range for the weight. Any proposed life who falls outside these ranges is either classified as underweight or overweight or borderline condition. Those who fall within these ranges are classified as standard or normal for the height and weight measurement.

However, for the blood pressure measurement, the readings shall be taken three times for both the systolic and diastolic and thereafter, the average reading is taken for these three readings. The systolic blood pressure is the top number and the diastolic blood pressure is the bottom number. The systolic is the highest pressure when the heart beats and pushes the blood round the body, whereas the diastolic is the lowest pressure when the heart relaxes between beats. For life assurance purposes, the standard maximum normal blood pressure reading for both systolic and diastolic is 140/90.

iii) Electrocardiogram (ECG)

Electrocardiogram may be described as a medical test which shows or measures the electrical activity of someone’s heartbeat. It may be represented as either ECG or EKG. The test is used to detect heart problems such heart failure and irregular heartbeat in the proposers.

Usually, not every sum assured proposed for would require the proposed life undergoing the Electrocardiogram test. The test shall only be required once the sum assured is in excess of say between GHC 300,000 and GHC 400,000 depending on the company.

1. iv) Chest X-ray (CXR)

Most life insurance companies are doing away with the Chest X-ray requirement in virtually all the markets, except there is a medical condition of the proposed life which is pointing towards it as being needed. The chest x-ray is a large film which reveals the conditions of the lungs and heart. It may also be used to diagnose shortness of breath and chest injury.

Lastly, just like the ECG, the chest x-ray shall only be required for certain level of sums assured from the proposed lives.

1. v) Haematology Studies and Microscopic Urinalysis

Haematology Studies will reveal the composition and derangement of the blood, while the Microscopic Urinalysis is the medical examination carried out on the proposer with a view of detecting several substances in the urine such as by-products of normal and abnormal metabolism and bacteria.

1. vi) Blood Chemistry

The blood chemistry will show the vital elements which make up the blood electrolytes in the body system. The purpose of the blood chemistry test is to indicate the functionality of some organs in the system. For instance, if the liver is not functioning well, certain key results from the blood chemistry test conducted would indicate a higher or lower value than the normal range values.

vii) Medical Examination Report (MER)

A Medical Examination Report (MER) is a report of the medical examination conducted on the proposed life by a medical doctor who is seen as being independent to both the life insurance company and proposed life. Though, the medical doctor would have been on the retainership of the life insurance company. The medical examination report is not the same as the private medical attendant report. While the former relates to the report of the current or new medical examination just been carried out on the proposed life, the former relates usually to the past medical history of the proposed life.

The practice is to send the proposed life to any of the hospitals on the retainership of the life insurance company taking into cognizance proximity and convenience to the person going for the medical examination. The applicable fees for the medical examination is borne by the life insurance company, though such associated cost would have been taken care of when computing the life assurance premium for the policyholder.

viii) Hospital Reports

Hospital reports as used in life assurance are clinical history reports of the life proposed for life assurance in circumstances where the life proposed has been treatment for a particular health condition (including follow up on surgical operations).  Hospital reports are seldom required by the life insurance companies, except where the medical examination reports on the life proposed point towards that.

Whenever it is required, the detailed information of the health condition and treatments received so far by the proposed life are all expected to be made available to the life insurance company for appropriate review.

1. ix) Human Immunodeficiency Virus (HIV)

Human Immunodeficiency Virus is a viral infection which if proper care is not taken timely can

destroy one’s immune system gradually and can lead to AIDS. The full meaning of AIDS is –

Acquired Immune Deficiency Syndrome. AIDS is regarded as a chronic life threatening

condition caused by a full blown up HIV infection.

The entire body is being protected by the immune system against any possible infectious diseases and if anyone allows his or her immune system to be fully attacked by AIDS, then death may be around the corner for the person. Generally, in the sub-region, HIV test is presently the highest form of medical examination for life assurance purpose and it is only required for huge sums assured. In the Ghana market, most sums assured in excess of GHC 600,000 are required to undergo HIV test along other medical examinations.

HIV test is valid only for between six to twelve months for life assurance purpose and once this period has been exceeded, the proposed life shall be required to repeat the test. In some markets most proposed for life assurance policies who are tested positive are generally declined, especially for the individual line of business. While in few sophisticated life insurance markets such as South Africa, there is usually HIV pool to provide life assurance cover for those living with the HIV Virus.

Underwriting for Group Life Policy

Usually, the premium for a group life cover is expected to be borne by the employer, in some instances   the employer and employees may come together to cater for the premium of the group life cover. In some countries, group life cover is made compulsory by the legislation for the employers to provide for their employees. Presently in Ghana, group life cover is not compulsory.

The main risk covered in a group life scheme is death, but some other benefits such as critical illness, terminal illness and disability benefits may be added to the main death cover as riders at additional premium.

Some of the considerations usually looked into by the life insurance companies when underwriting a group life scheme are:

1. i) The nature of the business of the employees;
2. ii) Past death claims experience;

iii) The age distribution of the scheme members;

1. iv) Other benefits to be covered by the group life scheme;
2. iv) The applicable free cover limit. 

Types of Premium Rating in Group Life Business

Premium for group life schemes may be charged using any of the following premium rate basis:

1. a) Single Premium Basis –

For single premium basis, each member of the group life scheme is charged premium by the life insurance company based on the premium rate applicable to his or her attained age according the premium rate table in use. However, whichever premium rate table used by the life insurance company, the premium rates generally increase with age. Thus, a member of the group life scheme whose age is 45 years is expected to have a premium rate higher than another member whose age is 42 years.

1. b) Unit Cost Premium Basis –

Unlike the single premium basis, the premium rate under the unit cost premium basis is applied as a constant percentage on the sum assured for each member of the group life scheme. The premium rate used in unit cost is subject to review though it may be guaranteed for a specific number of years before being reviewed.

However, just like the average premium rate basis (which is to be considered below), the unit cost premium basis is only to be applied to group life schemes whose membership size is considered as large

1. c) Average Premium Rate Basis –

SUMS ASSURED ABOVE THE FREE COVER LIMIT(GHC)	UP TO AGE 45	AGE 46 AND ABOVE
Up to 200,000 200,001 – 300,000 300,001 – 400,000 400,001 – 500,000 500,001 – 600,000 600,001 – Upwards	A B B + C B + C + D B + C + D + E B + C + D + E + F + G	A (B above Age 49) B + C B + C + D B + C + D + E B + C+ D + E + F B + C + D + E + F + G

For the average premium basis, an average premium rate is used as the applicable premium rate for each and every member of the group life scheme. In arriving at the average premium rate which is to be used, the average age would first be determined for the group scheme and the premium rate which corresponds to the average age obtained for the scheme is now to be applied to individual member of the scheme in respective of individual member’s attained age.

The average premium rate basis is only to be applied to group life schemes whose membership size is considered large. For practical purposes, a group life scheme with a membership size of say 500 members is considered as a large scheme, though the threshold for identifying a large scheme may vary from one life insurance market to the other one.

The technical importance of both the non-medical and free cover limits is that the maximum amount payable in respect of a life proposed who passes on shortly after the commencement of the policy before going for the appropriate medical examinations shall be limited to either the non-medical limit or free cover limit depending on the line of business involved (i.e, whether it is an individual or group life).