Which statement correctly distinguishes a contributory from a noncontributory group life plan?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
In a contributory group plan, the employees pay a portion or all of the premium, and the plan typically requires a minimum level of participation among eligible employees so the risk pool is large enough. In a noncontributory plan, the employer pays the entire premium and, because the employer funds the coverage, all eligible employees must be covered. Noncontributory plans may not discriminate among eligible employees. The distinction affects administration, participation requirements, and tax treatment. A noncontributory plan avoids adverse selection because 100 percent of eligible employees are automatically covered.
Why the other options are wrong
- The statement reverses the definitions: in a noncontributory plan the employer pays the full premium and the employees pay nothing.
- Contributory plans do carry participation requirements so that the pool of insured lives is large and the risk is spread.
- Noncontributory plans must cover all eligible employees on a non-discriminatory basis; covering only management would violate the rules.
Memory hook
Contributory = employees chip in. Noncontributory = employer picks up the whole tab and everyone eligible is in.