An Introduction to Simplified Life Insurance and Group Life Insurance: From Protection for Low-Income Groups to Employee Benefits Plans

II. Simplified Life Insurance Simplified life insurance typically refers to low-cost insurance policies offered to workers or salaried employees, with monthly, semi-monthly, or weekly premium payments and no medical examination required. Premiums are usually collected by the insurer on a timely basis. A waiting period or reduction period is generally adopted, meaning that the policy only becomes effective after a certain period following enrollment. If the insured dies within this period, the insurer is not liable for payment, or the payment amount is reduced.

III. Group Life Insurance Group life insurance is a type of term or whole life insurance purchased in groups. It is an important type of group personal insurance. Since the first group life insurance contract was issued by Equitable Life Insurance Company in the United States in 1912, the development of group life insurance has had a profound impact on society as a whole. For life insurance companies, group life insurance has become an important source of premium income and one of their main profit channels, and it has also made insurance awareness more widespread. For policyholders, it can strengthen the cooperative relationship between the group and its employees, and effectively prevent financial losses caused by the premature death of individual key employees. For company employees and their families, group life insurance can provide the necessary insurance protection without worrying about their health or financial situation preventing them from participating. Group life insurance also helps achieve certain social goals. For example, some developed capitalist countries' Employee Benefit Plans (EBP) mainly use group life insurance. Furthermore, the development of group life insurance has to some extent reduced the government's responsibility for charity and relief, and has also reduced further government intervention in the life insurance industry. Group life insurance is mainly divided into two categories: one is group term life insurance, which is the earliest, most common, and largest type of group life insurance. This type of insurance has no cash value and aims to provide early death insurance, but it is not very useful for protecting the livelihood of retired employees. The other is group whole life insurance, which has been developed in recent years and aims to protect the livelihood of retired employees. Because it is a relatively recent product, its market share is not high.

(I) Group Term Life Insurance: Most group term life insurance policies are underwritten as annually renewed term policies, essentially one-year term death insurance purchased as a group. Because the insurance period is only one year, a natural premium is used, and the policy has no cash value. No medical examination is required initially or upon renewal. Each year when renewing the contract, employees who have left the company are removed, and new employees are added. The insurer has the right to adjust the premium rate based on changes in the age structure, gender, etc., of the insured group. The portion of the group life insurance premium borne by the company generally enjoys tax benefits. In the United States, if the insurance amount per employee is less than $50,000 and the premium is entirely borne by the employer, this portion of the premium can be treated as an expense and is exempt from income tax. If the premium for group term life insurance is borne by the insured individual, this portion of the premium is also exempt from personal income tax. Group term life insurance policies, renewed annually, automatically terminate their coverage after one year, and can be automatically renewed without requiring proof of insurance coverage. Similar to individual life insurance, premiums increase annually upon renewal. However, when premiums are shared by the group and its employees, the individual's share remains constant, while the policyholder's share increases annually. But for the entire insurance plan, due to changes in age structure, gender composition, and sum insured within the group, the group's total burden may remain largely unchanged or even decrease. One derivative of group term life insurance is group credit life insurance, an insurance contract based on the creditor-debtor relationship. The creditor uses the lives of their present and future debtors as the insured object, with the policyholder (creditor) as the beneficiary (this differs from other group life insurance policies, such as group term life insurance where the policyholder-the insured group-is not the beneficiary). When the insured dies, the insurance company pays out insurance money to settle the insured's debts. The premium can be borne solely by the policyholder, or jointly by the debtor and both parties. Generally, the law stipulates that creditors may not use participation in group life insurance as a condition or means of expanding credit, in order to prevent moral hazard and protect the insurer's interests.

(II) Group Whole Life Insurance Group whole life insurance does not enjoy the tax benefits of the former and started later, therefore its development speed and scale are far inferior to group term life insurance. This type of insurance is usually purchased by small companies or enterprises to provide living security for employees upon retirement. The main types of group whole life insurance are as follows: 1. Group Paid-Up Insurance This is a type of insurance that combines one-year term death insurance and whole life death insurance. The premium for the former is borne by the insured group and is paid in a lump sum. Specifically, the insured group and its employees agree on a total sum insured for death insurance, which may vary among different employees. Employees pay a certain premium each year to purchase whole life insurance for themselves, using a lump sum payment method, and all policies are paid-up policies. The annual premiums for employees are the same, but due to age changes and increased risk, the sum insured of the whole life insurance paid-up policies varies each year, but the accumulated sum insured increases annually. The group purchases one-year term death insurance for its employees each year, with the sum insured being the difference between the agreed total amount and the accumulated amount of the whole life insurance. As the accumulated sum insured of whole life insurance increases year by year, the sum insured of one-year term life insurance decreases year by year. The premium for one-year term life insurance uses a natural premium, the policy has no cash value, and is borne by the group; whole life insurance policies with premiums borne by the employees have cash value. Regardless of when an employee dies, they can receive the agreed total sum insured; upon retirement or leaving the company, they can continue to enjoy insurance coverage or apply for surrender value to support their retirement or post-employment life. In group paid-up insurance, the premiums for term life insurance borne by the group also enjoy tax benefits. Although employees do not directly receive tax benefits, the insurance contract remains effective while the employee is employed, leaves the company, and retires, so overall it is still profitable. 2. Level premium group whole life insurance: This type of insurance is generally purchased by companies or enterprises for their employees as whole life insurance with limited-term premium payments, such as until retirement at age 60, thus providing retirement benefits. The payment period varies among employees of different ages, but all use the level premium method. If the group insurance premium is entirely borne by the company, the individual employee generally does not have a vested interest in the policy; if it is jointly borne by both parties, the employee owns the cash value of their self-paid portion. Whether the rights arising from the premium borne by the company also belong to the employee depends on the provisions of the retirement contract. 3. Savings-based group whole life insurance refers to a special fund jointly established by the insurer and the company. Funds are accumulated annually through dividends or company allocations to the insurer for use. Upon retirement, employees can use this fund to purchase term insurance or receive direct payments from the insurer to secure their retirement.