What distinguishes a contributory group life insurance plan from a noncontributory plan?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A contributory group life plan is one in which the employees contribute toward the premium, with the employer typically paying the balance; a noncontributory plan is one in which the employer pays the entire premium. Because employees have a financial stake in a contributory plan, insurers generally require that a substantial percentage of eligible employees participate, to avoid adverse selection — otherwise, only employees who expect to need coverage might enroll. In a noncontributory plan, where the employer pays 100 percent, all eligible employees are automatically covered, eliminating the selection problem.
Why the other options are wrong
- B) The relationship is reversed: contributory means employees contribute to the premium, while noncontributory means the employer pays the entire cost. A contributory plan therefore involves cost sharing.
- C) Evidence of insurability requirements relate to enrollment timing, group size, and the amount of coverage requested. They are not determined by whether the plan is contributory.
- D) The benefit size is set by the plan design and schedule of coverage. It is not determined by whether employees share in the premium cost of the plan.
Memory hook
Contributory = employees chip in, so most must enroll. Noncontributory = employer pays all, everyone's in.