Group Life Insurance

[Guest dsw713]

We change group life insurance carriers almost every year. Can I create a Company generic group life insurance beneficiary form (probably would mirror the one from our current carrier) and use it regardless of who the carrier is? If I mirror one from a major carrier, but just take off their logo, it should meet the requirements for our state and those we do business in plus include all the legal language.

[GMK]

From an an administrator's point of view, I like the idea very much.

But I would use the insurance company forms. I know it's just a beneficiary designation form, but it's still possible for a generic form not to cover everything the insurance company wants covered in its form. Now, if the insurance companies would come up with a standardized form, that would be sweet.

On the plus side, the new forms remind the insureds to review their beneficiary designations regularly to keep them up to date. Even in obvious situations, too many people forget or ignore the importance of designation updates.

[Guest dsw713]

I was thinking of sending out semi-annual reminders. I only have 100 employees, but getting a form back from each of them every year is like pulling teeth. Thanks for your feedback.

[leevena]

Good idea, but check with carriers first. My hunch is that the state requires submittal/approval of forms they use.

[vebaguru]

Your company is a perfect candidate for using a captive insurance arrangement. The enrollment forms and beneficiary forms would remain constant as they will be provided by the captive. The captive can re-shop the coverage each year and switch carriers as often as it is beneficial. In addition, the captive could shop for less expensive reinsurance with 0% retention.

The negative is the cost of creating a captive, but those are relatively inexpensive these days. And the captive could provide other coverages and advantages in addition to the group life insurance.

[leevena]

Your company is a perfect candidate for using a captive insurance arrangement. The enrollment forms and beneficiary forms would remain constant as they will be provided by the captive. The captive can re-shop the coverage each year and switch carriers as often as it is beneficial. In addition, the captive could shop for less expensive reinsurance with 0% retention.

The negative is the cost of creating a captive, but those are relatively inexpensive these days. And the captive could provide other coverages and advantages in addition to the group life insurance.

This is interesting and I would like to ask a few questions.

1. is the life benefit self-funded or insured?

2. what other benefits would you put in a captive?

3. are you talking about creating a captive (inexpensive) or renting a cell?

thanks.

[vebaguru]

Q1. is the life benefit self-funded or insured?

A1. As far as the captive is concerned, it is self-funded with 100% passed to the reinsurance company. As far as the employer/employees are concerned it is insured.

Q2. what other benefits would you put in a captive?

A2. Captives have several structures, including protected cells or series captives. The most desirable benefits to put into an ERISA captive would be post-retirement health, current health, disability (both long- and short-term), etc. It is now becoming popular to put defined benefit pension plans into an ERISA captive, especially when the employer is trying to get out from under the DB liability. However, captives are more commonly used for property and casualty coverages that are impossible to obtain (or prohibitively expensive) on the commercial market. Coverages like deductible reimbursement, E&O & exclusions, D&O & exclusions, excess liability, terrorism risk, litigation risk, employment practices, crime, tax audit, political risk, first party coverages, etc. Since each cell or series is taxed separately, a captive with multiple cells permits P&C risks to be handled by one cell, L&H by another and pension by a third.

Q3. are you talking about creating a captive (inexpensive) or renting a cell?

A3. While rent-a-cell arrangements are becoming common, I have yet to see one that does ERISA benefits. More likely would be using an inexpensive off-shore jurisdiction or DC as the domicile to keep the capital commitment down. We selected Utah for ours.

[Chaz]

vebaguru - Are benefits captives practical only for very large employers or can moderately sized employers use them as well?

[leevena]

Q1. is the life benefit self-funded or insured?

A1. As far as the captive is concerned, it is self-funded with 100% passed to the reinsurance company. As far as the employer/employees are concerned it is insured.

Q2. what other benefits would you put in a captive?

A2. Captives have several structures, including protected cells or series captives. The most desirable benefits to put into an ERISA captive would be post-retirement health, current health, disability (both long- and short-term), etc. It is now becoming popular to put defined benefit pension plans into an ERISA captive, especially when the employer is trying to get out from under the DB liability. However, captives are more commonly used for property and casualty coverages that are impossible to obtain (or prohibitively expensive) on the commercial market. Coverages like deductible reimbursement, E&O & exclusions, D&O & exclusions, excess liability, terrorism risk, litigation risk, employment practices, crime, tax audit, political risk, first party coverages, etc. Since each cell or series is taxed separately, a captive with multiple cells permits P&C risks to be handled by one cell, L&H by another and pension by a third.

Q3. are you talking about creating a captive (inexpensive) or renting a cell?

A3. While rent-a-cell arrangements are becoming common, I have yet to see one that does ERISA benefits. More likely would be using an inexpensive off-shore jurisdiction or DC as the domicile to keep the capital commitment down. We selected Utah for ours.

thanks for your reply. I wholesale alternative funding medical for small and medium size groups (under 15-500 lives) and often use a captive structure. Since these are small groups coming together in a cooperative risk sharing arrangement, the captive is very useful for us. Interesting difference though, we use rental arrangements for our medical. Thanks for your help.