Final answer:
A Certificate of Insurance is proof of insurance for individuals in group insurance, detailing coverage, whereas the Master Policy is the actual contract between the insurer and the policyholder.
Step-by-step explanation:
Understanding Certificate of Insurance and Master Policy in Group Insurance
A Certificate of Insurance is a document provided by the insurance company that verifies the existence of an insurance policy. It outlines the coverage amounts, policy effective dates, and types of coverage. This document is essential for group members because it serves as proof of insurance for each individual within the group plan. Typically under group insurance, individuals do not receive the entire policy but rather a certification that they are covered under the Master Policy, which is the actual contract between the insurance provider and the entity purchasing the group insurance, such as an employer or association.
In group insurance, the Master Policy or Master Contract is the legal document that outlines the terms and conditions of the coverage provided to the group. This includes the premiums to be paid, the benefits covered, and the coverage limits. The Master Policy is held by the policyholder - often an employer or organization - and it specifies how coverage works for employees or members, including what risks are covered and in what amounts, as well as any exclusions.
Insurance works as a method of protection from financial loss where policyholders pay regular premiums to the insurance entity, which compensates a group member who suffers financial damage due to a covered event. Problems like moral hazard and adverse selection can arise, which are mitigated through various mechanisms like underwriting and the structuring of coverage. Government regulation of insurance ensures that these issues are minimized and that the industry operates effectively for the protection of policyholders.