When it comes to insurance, more specifically group benefits, advisors can easily get carried away using terminology that may seem like a different language to those who don’t regularly think about group benefits. While it’s important for an advisor to explain things clearly, here are a few key terms to get you feeling a bit more comfortable:
Adjusted premium: The billed premium plus any adjustments that are made to reflect the change in demographics, as well as any plan changes throughout the claims period.
Billed premium: The premium amount that gets billed to the client by the insurer.
Cost sharing: Employers have the option of splitting the cost with employees. It’s mandatory that an employer pays a minimum of 50% of the total premium (excluding Health Spending and Lifestyle/Wellness Accounts). Some benefits have tax advantages if employees pay the premium.
Coverage status: Employee selects the type of coverage they need. Some common options are: single, couple, or family.
Credibility: The portion or percentage of the premium rates derived from a group's utilization experience.
Dependent: An individual that will also utilize the employee’s plan.This can include a spouse, common-law partner or children.
Effective or Inception Date: The date that the benefits plan takes effect.
Employee class: The group of plan members within a class who have the same benefit plan that may or may not differ from the rest of the plan members in a separate class. Classes can be created based on eligible common denominators. Some examples include “Owners class” or “Management class.”
Experience period: Can also be referred to as the “claims period.” This is the length of time in which data is collected and reported on. This often consists of a 12-month period.
Incurred But Not Reported Reserve (IBNR): A reserve collected by the insurer to cover the insurer's liability for claims that were incurred during the claims period, but submitted late and as a result, is included and paid in the following claims period.
Incurred claims: These are the claims that were paid out by the insurer that also include the IBNR reserve.
Incurred loss ratio: The ratio of the incurred claims by group members to the premium paid to the insurer within the claims period.
Late applicant: An employee or dependent can be deemed a late applicant if they have not completed and submitted an enrolment form to the insurer within 30 days of being hired or fulfilling the waiting period. Dependents can be deemed a late applicant if they are not added to the employee’s enrolment at time of initial submission or within 30 days of a life event.
Life event: Life events may include the change of status from single to common law, married, widowed, divorced, or birth of a child. These life events can allow a plan member to change their coverage without having to go through medical underwriting so long as the insurer is notified within 30 days of the life event.
Medical underwriting: When a plan member completes a medical questionnaire and provides medical information to insurers for review. In reviewing this information, insurance underwriters have the ability to approve or decline coverage for that individual.
Paid claims: This is the actual amount paid by insurers based on the claims submitted by plan members.
Plan administrator: This is the person who manages the benefits plan. This does not have to be the business owner.
Pooled claims: These are the claims that exceed the large amount pooling threshold and are therefore removed from the paid claims and claims experience.
Target loss ratio (TLR): Also referred to as the “breakeven point.” For every dollar spent, this percentage goes towards paying plan members claims. The remaining percent goes towards the cost of having a plan. This is the comparative number that insurers use when determining whether or not there are sufficient funds to accommodate the claims paid out by the insurer.
Waiting period: This is how long an employee must work for the company before they are eligible for company benefits. This may also be referred to as the probationary period. When implementing a benefits plan, employers have the option of choosing a waiting period.
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