When individuals buy life and disability insurance, the medical underwriting process, involving medical histories, physical exams and laboratory tests can sometimes be arduous. Yet when a group of executives are underwritten in conjunction with an employer-sponsored plan, the underwriting is relatively simple. In these situations, “multi-life” underwriting applies and the individual life or disability policies are issued on a “guaranteed issue” or “simplified-issue” basis.
“Guaranteed issue” for executive groups generally means that each executive in the approved group is issued a policy at standard rates and no one in the approved group is declined or rated, provided that they have been actively at work on a full-time basis and have not been absent from work because of illness or injury for more than five consecutive work days during the past three months. Other requirements often also apply:
- The group must have a minimum of 10 lives.
- The executives must be age 69 or younger.
- All executives in the eligible group must apply for coverage (require 100% participation).
- Eligible executive classifications must be clearly defined (e.g. all members of an executive job position or level must be included).
- Coverage amounts must be driven by a benefit formula (e.g. multiple of compensation, flat amount depending on executive level, etc.).
The amount of guaranteed-issue life or disability coverage on any one insured increases as the size of the eligible group increases. For example, the guaranteed-issue offer for an employer-paid/ executive-owned life insurance plan on 10 eligible participants typically provides up to $200,000 of coverage on each executive; while the guaranteed-issue amount on a group of 75 participants typically provides up to $3,000,000 of coverage on each executive.
When an executive group cannot qualify for guaranteed-issue underwriting, “simplified-issue” underwriting may work. This approach is not as liberal as guaranteed-issue underwriting; however, it is more streamlined than full underwriting. Although it includes a short form application and health and avocation questions, it typically does not include a medical exam.
Employer-sponsored plans that typically qualify for guaranteed-issue and simplified-issue underwriting include: Executive Life Insurance Plans, Supplemental Executive Disability Plans, Deferred Compensation Plans, Supplemental Executive Retirement Plans, Death-Benefit-Only Plans and Stock Redemption Plans.