Understanding Coverage Calculation Formulas
You can create simple formulas to define how coverage should be calculated. These formulas are used by both life and disability insurance plans. You can specify how the benefits compensation base is determined, a formula to apply against that base to derive a coverage amount, and limits on the coverage amount. You can also define whether the coverage is subject to reduction based on attained age. The examples illustrate calculation possibilities with as of rates:
Example: Employer Pays Increased Premium
An employee belongs to a life insurance plan that uses the premium as of January 1, current year and coverage as of the current date. The system uses the benefit base for the calculation.
| Employee | Effective Date | Salary | Benefit Base |
|---|---|---|---|
|
Ann Jeffrey |
January 1, 2008 |
10,000 |
12,000 |
|
Ann Jeffrey |
April 1, 2008 |
15,000 |
15,000 |
|
Ann Jeffrey |
January 1, 2009 |
17,500 |
18,000 |
| Table | Effective Date | Rate | Per |
|---|---|---|---|
|
Life (employee) |
January 1, 2008 |
1.00 |
Thousand |
|
Life (employer) |
January 1, 2008 |
2.00 |
Thousand |
The employee gets a raise, so coverage increases during the year; however, until the next January 1, the system calculates the employee premium as if the coverage did not increase. The employer pays the difference between the employee deduction and the actual cost. This affects imputed income.
| Pay End Date | Coverage | Employee Amount | Employer amount |
|---|---|---|---|
|
January 31, 2008 |
12,000 |
12.00 |
24.00 |
|
February 28, 2008 |
12,000 |
12.00 |
24.00 |
|
March 31, 2008 |
12,000 |
12.00 |
24.00 |
|
April 30, 2008 |
15,000 |
12.00 |
33.00 |
|
May 31, 2008 |
15,000 |
12.00 |
33.00 |
Example: Coverage and Premium Remain the Same
Another employee belongs to a life insurance plan that uses the premium as of January 1, current year and coverage as of January 1, current year.
| Employee | Effective Date | Salary | Benefit Base |
|---|---|---|---|
|
Jim Henry |
January 1, 2008 |
10,000 |
12,000 |
|
Jim Henry |
April 1, 2008 |
15,000 |
15,000 |
|
Jim Henry |
January 1, 2009 |
17,500 |
18,000 |
| Table | Effective Date | Rate | Per |
|---|---|---|---|
|
Life (employee) |
January 1, 2008 |
1.00 |
Thousand |
|
Life (employer) |
January 1, 2008 |
2.00 |
Thousand |
No change is made in Jim Henry's coverage or premium until the new year.
| Pay End Date | Coverage | Employee Amount | Employer Amount |
|---|---|---|---|
|
January 31, 2008 |
12,000 |
12.00 |
24,00 |
|
February 28, 2008 |
12,000 |
12.00 |
24,00 |
|
March 31, 2008 |
12,000 |
12.00 |
24,00 |
|
April 30, 2008 |
15,000 |
12.00 |
24,00 |
|
May 31, 2008 |
15,000 |
12.00 |
24,00 |