CII R05 Group Insurance Schemes 2 — Questions and Answers
Question 1: What is 'cascade benefit' in a group income protection scheme?
- Benefits that increase automatically each year by RPI
- Where the cost of long-term claimants is spread (or 'cascaded') across the group scheme (Correct answer)
- The option for employees to extend their benefit beyond normal retirement date
- The payment of employer NIC costs by the insurer
Correct answer: Where the cost of long-term claimants is spread (or 'cascaded') across the group scheme
A cascade (or pooling) arrangement means that the cost of expensive long-term claimants is shared across the whole group scheme rather than falling solely on one employer, making long-term claims more affordable.
Question 2: Under a group life assurance scheme, what happens when an employee leaves the employer?
- Cover continues automatically for 12 months
- The employee can convert the group policy to an individual policy within 31 days without evidence of health (Correct answer)
- The employee receives a refund of the employer's premium contributions
- Cover continues until the employee finds new employment
Correct answer: The employee can convert the group policy to an individual policy within 31 days without evidence of health
Most group life schemes include a conversion option, allowing a departing employee to convert their group life cover to an individual policy within 31 days of leaving, without having to provide medical evidence of health.
Question 3: What is the Employer's Class 1 National Insurance implication of group death-in-service registered under a pension scheme?
- Employers pay NIC on all death-in-service premiums
- Registered group life premiums are exempt from employer NIC as they are exempt from Class 1A (Correct answer)
- Death-in-service is subject to employer NIC at 13.8%
- Death-in-service premiums attract a reduced NIC rate of 5%
Correct answer: Registered group life premiums are exempt from employer NIC as they are exempt from Class 1A
Premiums for group life assurance registered under a pension scheme are not treated as a benefit in kind for employees, so they are not subject to Class 1A NIC for the employer. They are a fully deductible business expense.
Question 4: What is the minimum level of employer contribution required under auto-enrolment (from April 2019 onwards)?
- 1% employer, 1% employee
- 2% employer, 3% employee
- 3% employer, 5% employee total (Correct answer)
- 5% employer, 3% employee
Correct answer: 3% employer, 5% employee total
From April 2019, the minimum total contribution under auto-enrolment is 8% of qualifying earnings, with a minimum of 3% from the employer and 5% from the employee (including tax relief).
Question 5: A group income protection scheme is arranged on a 'self-insured' basis. What does this mean?
- Each employee pays their own premiums
- The employer meets the cost of claims themselves rather than transferring risk to an insurer (Correct answer)
- The insurer does not perform underwriting on the scheme
- Employees are responsible for their own medical evidence
Correct answer: The employer meets the cost of claims themselves rather than transferring risk to an insurer
A self-insured (or self-funded) group scheme means the employer bears the financial risk of claims rather than transferring it to an insurer. Large employers sometimes do this to retain the savings if claims are low.
Question 6: What is the role of the 'scheme actuary' in a large group protection arrangement?
- To sell the scheme to prospective employees
- To calculate appropriate premium rates and assess the long-term financial position of the scheme (Correct answer)
- To pay claims directly to employees
- To underwrite individual members above the free cover limit
Correct answer: To calculate appropriate premium rates and assess the long-term financial position of the scheme
In larger group schemes, particularly self-insured arrangements, a scheme actuary assesses the financial sustainability of the scheme, models future claim costs, and recommends appropriate contribution rates.
CII R05 Group Insurance Schemes 2
What is 'cascade benefit' in a group income protection scheme?