Page 25 - Life Assurance

ic (group life) underwriting principles:

Because individual evidence of insurability
is usually not required, group insurers must
observe certain underwriting principles so that
the loss experience of the group is favorable.
These principles are as follows:

1- Insurance incidental to the group.

Insurance must be incidental to the group. That
is, the group should not be formed for the sole
purpose of obtaining insurance. This requirement is
necessary to reduce adverse selection against the
insurer.

2- Flow of persons through the group.

Ideally, there should be a flow of younger
persons into the group and a flow of older persons
out of the group. Without a flow of younger person
into the group, the average age of the group will
increase, and premium rates will likewise increase.

3- Automatic determination of benefits.

Benefits should be automatically determined by
some formula that precludes individual selection of
insurance amount. The amount of insurance can be
based on earnings, position, Length of service, or
some combination of these factors. The purpose of
this requirement is to reduce adverse selection
against the insurer. If individual members were

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