A method of providing portability and conversion life insurance
plans to departing employees is disclosed. The method comprises
the steps of establishing risk parameters for pricing an insurance
policy, collecting data regarding a departing employee's individual
risk level upon termination of employment, assigning the departing
employee a rating based on risk level, and offering a rate based
on the departing employee's rating, where low-risk individuals pay
a lower premium than do higher-risk individuals. The method results
in the retention within the plan of low-risk individuals who might
otherwise opt for another policy with a more competitive rate. Implementation
of the method thereby creates a more favorable risk pool of insured
individuals and represents a tremendous increase in efficiency compared
to the way portability and conversion insurance programs are conventionally
1. A method of designing an insurance program, comprising the steps
of: establishing risk parameters for pricing an insurance policy,
collecting data regarding a departing employee's individual risk
level upon termination of employment, assigning the departing employee
a rating based on risk level, and offering a rate based on the departing
employee's rating, where low-risk individuals pay a lower premium
than do higher-risk individuals.
2. The method of claim 1, wherein the insurance program is a portability
life insurance program.
3. The method of claim 1, wherein the insurance program is a portability
disability insurance program.
4. The method of claim 1, wherein the insurance program is a portability
health insurance program.
5. The method of claim 1, wherein the step establishing risk parameters
specifically factors in age, gender and smoking status.
6. The method of claim 1, wherein a departing employee is rated
as a preferred risk or a standard risk and is offered a preferred
premium or a standard premium in correspondence with the level of
7. The method of claim 1, wherein a departing employee is assigned
a numeric rating and is offered a premium on a sliding scale, where
lower-risk employees are offered lower premiums.
8. The method of claim 1, wherein data collection is accomplished
through the use of a brief questionnaire.
9. The method of claim 1, wherein data collection is accomplished
via a physical examination.
BACKGROUND OF THE INVENTION
 1. Field of the Invention
 The present invention relates to the field of insurance,
particularly to a method of providing a more cost-effective and
efficient means of providing portability and conversion life insurance
programs by creating a more favorable risk pool among participants.
 2. The Prior Art
 A sizable percentage of the public carries life insurance
under group plans sponsored by employers. In today's mobile society,
it is increasingly important for individuals to have the ability
to continue insurance coverage and other benefits upon leaving a
company. Portability and conversion life insurance policies which
allow individuals to convert from coverage under a group plan to
coverage under an individual whole life or term plan are an important
and popular method of achieving continuing life insurance coverage
after the termination of employment.
 Portability and conversion life insurance policies are well
known in the art and are offered by many insurers. However, plans
currently on the market do not take advantage of available economic
opportunities and often ignore financial realities of the risk pools
created by the implementation of standard plans.
 Group plans typically involve no scrutiny of the individuals
to be covered and require no or limited medical questionnaires or
exams to assess the specific risk presented by any particular person.
Instead, group plans allow insurers to spread the risk among a large
number of low-, average- and high-risk individuals and to set a
premium based on the risk profile of the overall group. As a result,
the premium under a group plan tends to be better than what a high-risk
individual could obtain under an individual plan and worse than
what a low-risk individual could obtain individually. However, because
part of the premium cost is typically subsidized by the employer,
the group rate during the term of employment tends to be lower than
what medium and high risk individuals could obtain individually.
 This ceases to be the case once a low-risk individual leaves
the company. Since conventional portability or conversion policies
are based on the average risk level of the group, an individual
with a better risk can obtain a cheaper rate of insurance by forgoing
the portable insurance plan and taking out an individual policy.
Conversely, the portable plan represents the best rate obtainable
by a high-risk individual. The result is that portability or conversion
policies effectively separate terminated employees into two groups:
low-risk individuals who have economic incentive to forgo the policy,
and high-risk individuals who have economic incentive to stay with
the policy. Inevitably, the low-risk individuals disappear, leaving
the underwriters of the portable plan with a pool of high-risk individuals
paying a level of premiums insufficient to make the plan profitable.
 An insurance program's loss ratio is the ratio of claims
paid out by the insurer to premiums taken in. A loss ratio of 100%
represents the break even point, where claim payments are exactly
equal to premiums received. A loss ratio above 100% represents the
unfavorable situation where claim payments exceed premium payments.
A ratio under 100% represents the favorable situation where premium
payments exceed claim payments. Understandably, insurers strive
to maintain programs with a loss ratio under 100%. However, insurers
historically have had difficulty achieving this for portability
or conversion insurance programs. A typical program might offer
departing employees portability or conversion life insurance at
a blanket rate of 20% or more above the rate paid during their term
of employment. This type of rate structure can result in a very
unprofitable loss ratio of 200% or more.
 The implementation of conventional portability and conversion
plans drives away low-risk individuals and creates a pool composed
of disproportionately high-risk individuals. A need exists for a
method of implementing such programs that takes into account the
economic relationship between mortality risks and premium rates
so that a more favorable risk pool can be created and maintained.
SUMMARY OF THE INVENTION
 The present invention is a method of providing portability
and conversion insurance coverage which structure premium rates
to known risk factors and does not cause low-risk individuals disincentive
to participate in the program. This method avoids the creation of
a risk pool composed of disproportionately high-risk individuals
and makes such insurance programs much more cost effective.
 The inventive concept encompasses two separate but related
scenarios: (1) The individual participates in a basic group/employer-paid
life insurance plan during the term of employment. A departing employee
transitions to an individual plan by exercising the conversion privilege
offered in the contract. (2) The individual participates in an optional
group/employee-paid life insurance group plan during the term of
employment. A departing employee transitions to an individual plan
by exercising the portability privilege offered in the contract.
The mechanism by which a participating employee transitions from
a group to an individual plan is technically different under the
two scenarios, but the inventive concept applies equally well to
 When a participating employee is terminated or voluntarily
leaves the group plan, he completes a medical evaluation, which
can range from a short medical questionnaire to a long, detailed
medical survey to a complete physical exam. More detailed and stringent
evaluations lead to more accurate assessments of risk, but any such
information, even the limited quantity obtainable through a short
questionnaire, improves the insurer's ability to make a risk determination.
Participants are assigned a rating on the basis of the medical evaluation.
If the results indicate the participant is a low medical risk, the
participant ports or converts his insurance at a preferred rate.
If the participant is a high medical risk, the participant ports
or converts his insurance at a rate higher than the preferred rate
but still lower than what the participant could obtain on the open
market. Thus, low-risk participants no longer have incentive to
forgo the plan.
 In one embodiment of the procedure, low-risk former employees
continue to pay the premiums at the rate offered under the group
plan during the term of employment. This is known as the preferred
rate. High-risk participants pay premiums at a rate that is 50%
or more above the preferred rate. This embodiment can be expected
to result in a much-improved loss ratio. For example, the loss ratio
of the preferred group can be expected to run at about 30-70%, while
that of the high-risk group can be expected to run at about 90-120%.
Because the preferred individuals tend to outnumber those in the
high-risk pool, the overall loss ratio can be expected to run well
below 100%, a tremendous increase in efficiency compared to the
way portability and conversion insurance programs are conventionally
 It is an object of this invention to offer a more cost-effective
and efficient method of providing portability and conversion life
insurance upon termination of employment.
 It is further object of this invention to provide a method
of providing portability and conversion insurance coverage plans,
which capture the healthy, low-risk participants by offering a rate
competitive with what could be found on the open market.
 It is a further object of this invention to provide a method
of providing portability and conversion insurance with a rate structure
based on known mortality factors.
 It is still a further object of this invention to provide
a computer-based means of implementing the method.
 It is an advantage of this invention that it describes a
method of providing portability and conversion insurance plans such
that their implementation does not create a risk pool composed of
disproportionately high-risk individuals.
 Further objects and advantages of the present invention
will become apparent to those skilled in the art to which the invention
relates, from the following embodiments described with reference
to the accompanying drawings, the specification and claims.
BRIEF DESCRIPTION OF THE DRAWINGS
 The foregoing and other additional objects of the present
invention will be readily appreciated by those skilled in the art
upon gaining an understanding of the preferred embodiment as described
in the following detailed description and shown in the accompanying
drawings in which:
 FIG. 1 depicts a flow diagram for a method of providing
portability or conversion life insurance.
 FIG. 2 is a block diagram illustrating one embodiment of
an overall system in which the method may be implemented.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT
 While this present invention is susceptible of embodiments
in many different forms, there are shown in the drawings and will
be described in detail herein, a preferred embodiment, with like
parts designated by like reference numerals and with the understanding
that the present disclosure is to be considered as an exemplification
of the principles of the present invention, and is not intended
to limit the claims to the illustrated preferred embodiment.
 Referring now to FIG. 1, the method 20 of providing portability
or conversion life insurance is displayed in a flow diagram.
 In the first step 22 of the method, the insurer decides
what risk parameters will be relevant for pricing the policy and
factors them into a computer program designed to calculate risk.
Various mortality factors the insurer may take into account include,
but are not limited to, age, gender, tobacco use, height, weight,
family medical history, driving record, criminal record, recreational
activities engaged in by the participant. The insurer can then decide
how much detail is necessary to make proper risk assessments and
how to acquire the necessary information from the participants and
any other sources of information that may be available. Methods
of collecting the data may include a brief questionnaire, an interview,
a detailed medical survey, a comprehensive exam by a physician,
or other such methods. The preferred embodiment makes use of a short
 Upon termination of employment, the next step of the method
24 is to collect risk assessment data from the departing employee
in the manner designated in the previous step. The data is entered
into the system 40 where the individual's mortality risk is evaluated.
Based on the level of risk presented, the departing employee is
assigned a rating pursuant to step 26. The rating can be a quantitative
numeric value or a qualitative description, e.g. preferred, standard,
substandard, or whatever the insurer deems appropriate. The preferred
embodiment contemplates only two ratings: preferred and standard.
A profile is created for the departing employee which is uploaded
to a searchable database 48 and stored. As the database is built,
mortality information that is subsequently generated may be used
to make further refinements to the risk parameters and better tailor
the rates offered to the risk presented.
 A rate of premium is offered based upon the assigned rating,
with lower premiums offered to individuals presenting lower risk.
In the preferred embodiment, the preferred-risk participants would
be charged the same premium as was paid during the term of active
employment. Standard-risk participants would be charged a premium
20% higher than that paid during employment. However, any number
of ratings could be designated and other rate structures could be
successfully put into practice. For example, the method would lend
itself well to a continuous numeric rating system with a sliding
scale of premium offered according to the rating, where lower mortality
risks are offered lower premiums.
 Any profit generated by the program could be shared with
the sponsoring employer or the participating employees to make the
program even more attractive.
 An exemplary computer system 40 with which the present method
may be implemented is shown in FIG. 2. The system 40 contains an
input mechanism 44 such as a keyboard by which information about
the departing employee is entered. The CPU 42 performs calculations
to evaluate the departing employee's risk level, assign the employee
a rating based on risk, and to generate an employee profile. The
information and employee profile are stored in a database 48 with
a search engine 46 which can be retrieved by a system user and sent
to an output device 50 such as a printer. The data may also be accessed
by an external user through a modem 52. The system 40 may also be
used to coordinate and schedule medical exams and surveys used in
the data collection step 24.
 While the invention has been described in connection with
a preferred embodiment, it will be understood that it is not intended
that the invention be limited to that embodiment. On the contrary,
it is intended to cover all alternatives, modifications and equivalents
as may be included within the spirit and scope of the invention
 As to the manner of usage and operation of the present invention,
the same should be apparent from the above disclosure, and accordingly
no further discussion relevant to the manner of usage and operation
of the present invention shall be provided.
 With respect to the above description then, it is to be
realized that the present invention includes variations which are
deemed readily apparent and obvious to one skilled in the art, and
all equivalent relationships to those illustrated in the drawings
and described in the specification are intended to be encompassed
by the present invention.
 Therefore, the foregoing is considered illustrative of only
the principles of the present invention. Further, since numerous
modifications and changes will readily occur to those skilled in
the art, it is not desired to limit the claims to the exact construction
and operation shown and described, and accordingly, all suitable
modifications and equivalents may be resorted to, falling within
the scope of the claims. Therefore the foregoing is considered illustrative
of the principles of the present invention.