The employee, under the carve out approach, changes the government mandated Table I tax cost, which had no cash value or other living benefits, into taxes on the premium for the cash value policy. The internal rate of return on the cash value generated by any modest incremental cost differential over traditional free GTLI coverage is very attractive as a benefit enhancement. The employer's cost for GTLI is the actual group life premium billed, less any employee contributions. This is a generic, non-specific cost for one year term insurance on a group basis, and does not take into account sex, health, smoker status, medical history, or any other factor except age. The amount of the discount off this manual rate is based on the industry classification, with a low risk industry like accounting having a higher discount factor than a riskier manufacturing operation.
Male rates are higher than female rates.
Please note that the new plan costs are modestly higher initially. This policy form keeps the difference in premium between the term and permanent coverage to a modest level and can help make the switch more attractive. The premiums and cash values are all guaranteed. Dividends are used to reduce the premium outlay to keep company cost down. Other possible policy forms, including universal life, could also be used, depending on the client's preference for guarantees versus flexibility.