Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Which statement correctly distinguishes a contributory from a noncontributory group life plan?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
In a contributory group life plan, the covered employees contribute toward the premium, and a minimum percentage of eligible employees must participate to spread the risk. In a noncontributory plan, the employer pays the entire premium, and because employees bear no cost, all eligible employees are covered automatically. Contributory plans let employees share the cost of the benefit; noncontributory plans maximize participation and are common when the employer funds the benefit fully. The participation requirements protect the insurer from adverse selection.
Why the other options are wrong
- B) This reverses the definitions: contributory means employees contribute; noncontributory means the employer pays the full premium. The definitions run in the opposite direction from what this option states, so the choice is simply reversed.
- C) The participation percentages are reversed: noncontributory plans require full participation, while contributory plans typically require a high percentage such as 75%. Full participation attaches to noncontributory plans, while contributory plans need a high but less than complete percentage.
- D) Contributory group life plans are lawful and common; employees may contribute toward group coverage. Contributory group life plans are expressly permitted and widely sold, so illegality is not a correct statement.
Memory hook
Contributory = employees chip in. Noncontributory = employer pays all, everyone joins.