Group Plan Insurance
I recently saw in a company’s (un-named to protect anonymity) newsletter, this announcement about their group plan insurance. Take a look at this censored excerpt:
Each year our insurer reviews the cost of our LTD coverage and makes adjustments to the premium based on the claims incurred during the year. Our incidence of disability claims has increased this past year, and as a result of the insurer’s review the premium for your coverage will increase by 10% beginning with the first pay in January.
For example, if you earn $xx,xxxx annually, your payroll deduction for LTD coverage will increase by approximately $x.xx per month, or $xx.xx per year.
It is important to understand that even with this increase [company name] employees are still enjoying significant discounts on premiums. You receive a premium discount under the group plan that is not available with individual disability insurance contracts.
It seems like it is still a great deal right? Well, before you decide for yourself, let’s examine how group insurance works!
Underwriting
First of all, Insurance companies are in business to make money! Underwriting is a process that is critical to insurance operations because they have to know that the odds of claims versus premiums received are in their favour! For individual policies/contracts, underwriting helps a company determine an individual’s risk profile, whether they are high-risk, average or low-risk for claims. They can offer much discount to low-risk individuals and charge premium rates and even reject high-risk individuals.
In a group plan, underwriting is not so clear-cut for the insurance company. They can only look at general population statistics, previous claims, and research data to determine if a group of people are at risk to make claims. This added risk factor translates to a higher cost per $1000 of insurance for the group plan than an individual cost per $1000 of coverage.
It might seem like you’re paying less for disability insurance through a group plan, but you may not be getting your value’s worth! For the same amount of money you’re playing, the coverage or claim rewards may be higher for you if you are of a low-risk profile. It’s very communist in a way because those who are of low risk are paying more to make up for the high risk that the insurance companies are taking on.
Group Plan Advantage?
An advantage of group plans however is also the lack of underwriting. If you have been rejected or are already of high-risk profile and need insurance. Your only change will be to go with a group plan because they don’t ask questions!
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