A social club organizes its members into a group for the sole purpose of letting them buy inexpensive life insurance, with no other reason for the association to exist. Why does this arrangement fail the eligibility concepts for group life coverage under N.J.S.A. 17B:27-68?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Eligible groups under the New Jersey group life law exist independently of the insurance: an employer-employee relationship, an association with ongoing purposes, or another recognized grouping must predate and outlast the coverage. A group assembled only as a vehicle to purchase life insurance invites adverse selection and defeats the underwriting logic of group coverage, because membership would rise and fall with the price of insurance rather than with a genuine common purpose. N.J.S.A. 17B:27-68 and the related sections anchor these eligibility concepts, and the New Jersey Department of Banking and Insurance polices plans that skirt them.
Why the other options are wrong
- A) The problem is not the club's identity; qualifying organizations can sponsor group coverage, but the group must have an independent purpose.
- B) Selling life insurance to members of a genuine eligible group is precisely what the law permits; only contrived groups fail.
- C) The defect described is the group's purpose, not its size; no specific headcount is the issue in this arrangement.
Memory hook
Insurance can ride on a group; it cannot be the reason the group exists.