Under California Insurance Code Section 10270.5, before group disability insurance may be issued to an association, the association must:

Why A is correct

CIC Section 10270.5 sets the conditions for group disability insurance issued to associations. A key statutory requirement is that the association be formed and maintained in good faith for purposes other than obtaining insurance, so that groups are not assembled merely to buy coverage and bypass the small-group market and risk-pooling rules. The statute also requires a plan that precludes individual selection of coverage amounts, preventing members from self-selecting risk levels. The bona fide association requirement protects group underwriting from antiselection: if associations could be created merely to obtain insurance, sicker individuals could concentrate in a single group and destabilize the risk pool. Continuous maintenance of the association's noninsurance purpose is therefore an ongoing condition, not a one-time filing.

Why the other options are wrong

• B) An association formed primarily to buy insurance fails the statutory purpose test and is not a valid group for group disability insurance. An association created primarily to buy insurance fails the bona fide purpose test and cannot qualify as a group disability policyholder.
• C) California law does not limit eligible associations to a single county. There is no geographic operating limit of a single county in the statute; the controlling test is the association's bona fide, noninsurance purpose.
• D) Association group eligibility is determined under California law (CIC Section 10270.5), not by federal approval. Group insurance approval is a state matter under the California Insurance Code, and the federal government has no role in approving a California association's group status.

Memory hook

Associations must exist for their members' sake, not as insurance-buying clubs. Purpose before coverage.