Final answer:
In planning a company's budget with a group life insurance plan, note that not all employees may pay their premiums if it's contributory. The insurer can also increase premiums at renewal. Actuarially fair premiums must average out the costs, run the company, and ensure profit, taking into account the varied risks of subgroups within the insured group.
Step-by-step explanation:
When planning out a company's budget with a group life insurance plan in place, several considerations must be taken into account. If it is a contributory plan, it is important to note that not all covered employees may pay their share of the premiums.
This can impact the company's budgeting for the plan's costs. Regarding premium changes, the insurer can increase the premium at renewal, affecting the future financial planning of the company. It is also essential to understand actuarial fairness. Actuarial fairness involves calculating premiums so that, on average, they cover the claims, the costs of running the insurance company, and allow for company profit. C
harging an actuarially fair premium for the group as a whole, instead of to each subgroup (which might have different risk levels), means the premium must reflect the averaged risk, potentially disadvantaging some subgroups while benefiting others.