Page 26 - Life Assurance

mitted to select the amount of insurance,
unhealthy persons would likely select larger
amounts, while healthier persons would likely select
smaller amounts.

4- Minimum participation requirements.

A minimum percentage of the eligible employee
must participate in the plan. If the plan is a
noncontributory plan, the premiums are paid entirely
by the employee, and 100 percent of the eligible
employee must be covered. If the plan is a
contributory plan, the employee pays part all of the
cost and a large proportion of the eligible employee
must elect to participate in the plan.

There are two reasons for the minimum
participate requirement, First, if a large proportion of
eligible employee participate, adverse selection is
reduced, because the possibility of insuring a large
proportion of unhealthy lives is reduced, Second if a
high proportion of eligible member participate, the
expense rate per insured member or per unit of
insurance can be reduced.

5- Third- party sharing of cost.

Ideally, individual members should not pay the
entire cost of their protection. In most groups, the
employer pays part of the cost .A third- party sharing
of cost avoids the problem of a substantial increase
in premiums for older member. In a plan in which the
members pay the entire cost, younger persons help

126 Life51/life/life 08