Under California group disability insurance law (CIC §10270.5), an association may qualify as a group policyholder only if it:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
CIC §10270.5(3) requires an association seeking a group disability policy to have a constitution and bylaws and to have been formed and continuously maintained in good faith for purposes other than obtaining insurance. The law also requires the association to cover a minimum number of eligible members under a plan that prevents individual selection of coverage amounts. An entity created mainly to buy insurance is a sham group assembled for adverse selection rather than a genuine association of people sharing a common bond. The purpose test is the core qualification, so A is correct under California law.
Why the other options are wrong
- B) A group formed primarily to obtain insurance is expressly disqualified under CIC §10270.5; California requires an independent, pre-existing organizational purpose that exists apart from purchasing coverage. The statute is explicit that the association must exist for legitimate purposes apart from securing coverage.
- C) California law instead imposes substantial existence and membership thresholds for association trusts, including a minimum membership and active existence for at least two years, so 30 days is far too short.
- D) Restricting membership by age would make the group a vehicle for risk selection and skew the pool; California law imposes no such age restriction and would treat it as an improper device.
Memory hook
A real association has a reason to exist besides buying insurance. Purpose first, policy second.