In a contributory group life insurance plan, the employees pay part of the premium. Which statement is correct about such plans?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Because contributory plans depend on employee premium payments, insurers generally require that a minimum percentage of eligible employees participate so that the risk is spread broadly and adverse selection is limited. Eligible employees who do not want coverage are usually asked to sign a declination so the employer can demonstrate that coverage was offered to everyone eligible. In contrast, a noncontributory plan, where the employer pays the full cost, typically covers all eligible employees automatically without any employee contribution. The minimum participation requirement protects the insurer from adverse selection within the group.
Why the other options are wrong
- B) Employees can decline contributory coverage; signed declinations are a normal part of the group enrollment process. The signed declination form documents that coverage was offered to and declined by the eligible employee.
- C) Contributory means the employees share the cost; the employer paying the entire premium describes a noncontributory plan. Declining is a protected choice, and no employee is forced to accept contributory coverage.
- D) Group plans must cover broad eligible classes of employees and avoid discrimination; participation is not limited to management. When the employer pays the full premium, the plan is noncontributory and typically covers all eligible employees automatically.
Memory hook
Contributory = employee pays a share, minimum participation required, declinations signed. Noncontributory = employer pays all.