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AMF Group Insurance practice questions

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Question 1Group Insurance Fundamentals and General Provisions

What does the principle of indemnity require of a group insurance benefit payment?

  1. It replaces the insured's entire lifetime earnings
  2. It restores the insured to approximately the pre-loss financial position without profit Correct answer.
  3. It guarantees a fixed profit margin for the plan sponsor
  4. It always pays a multiple of the premium paid

Explanation

Indemnity means the benefit should restore the insured to roughly the financial position held before the loss, no better and no worse. It prevents the insured from profiting from an insured event. Group life and health benefits are designed with this principle in mind, though flat-sum benefits are only an approximation of it.

Question 2Group Insurance Fundamentals and General Provisions

In group insurance, who typically holds the master contract?

  1. The insurance broker of record
  2. The third-party administrator
  3. The plan sponsor, such as the employer Correct answer.
  4. Each individual certificate holder

Explanation

The group policy is issued to the plan sponsor, usually the employer or a trustee, who is the policyholder. Individual participants receive certificates that evidence coverage under that master contract rather than holding policies themselves. This structure is the defining feature that separates group from individual insurance.

Question 3Group Insurance Fundamentals and General Provisions

Which characteristic most clearly distinguishes group underwriting from individual underwriting?

  1. Use of higher premium rates for older applicants
  2. Exclusion of all pre-existing conditions
  3. Evaluation of the group as a whole rather than each person Correct answer.
  4. Reliance on individual medical evidence for each member

Explanation

Group underwriting assesses the characteristics of the entire group, such as industry, size, and prior claims experience, rather than medically examining each participant. Individual evidence is generally not required for eligible members. This group-level approach is what makes group coverage administratively efficient.

Question 4Group Insurance Fundamentals and General Provisions

What is the main purpose of an actively-at-work provision in a group policy?

  1. To limit benefits to work-related injuries
  2. To require employees to pass a physical examination
  3. To reduce premiums for part-time staff
  4. To make coverage effective only for persons performing their job duties Correct answer.

Explanation

An actively-at-work provision makes an eligible person's coverage effective only when that person is actually performing the normal duties of the job. It prevents someone who is disabled or absent from obtaining coverage without evidence of insurability. This protects the insurer from adverse selection at the point of enrollment.

Question 5Group Insurance Fundamentals and General Provisions

What does a probationary period in a group plan generally accomplish?

  1. It reduces the benefit amount for the first year
  2. It suspends an insurer's obligation to pay claims
  3. It delays eligibility for new hires until a stated period has passed Correct answer.
  4. It allows the insurer to cancel the contract without notice

Explanation

A probationary period requires a newly hired employee to wait a specified time before becoming eligible to enroll. It reduces administrative churn and limits selection against the plan by very short-term participants. It applies to eligibility, not to the insurer's duty to pay covered claims.

Question 6Group Insurance Fundamentals and General Provisions

Which entity usually issues certificates of insurance to group members?

  1. The state insurance department
  2. The employee benefits committee
  3. The insurer that issued the group policy Correct answer.
  4. The payroll processor

Explanation

The insurer issues certificates to the policyholder for distribution to covered individuals. A certificate summarizes the coverage, beneficiary, and key policy terms but is not itself a contract. It provides evidence of participation under the master policy.

Question 7Group Insurance Fundamentals and General Provisions

A group life plan pays a stated sum on the death of a covered member. Which policy feature does this describe?

  1. A coinsurance arrangement
  2. A flat-sum benefit Correct answer.
  3. An indemnity schedule
  4. A reimbursement benefit

Explanation

A flat-sum benefit pays a predetermined amount regardless of the actual financial loss. Group term life insurance is the classic example, since the face amount cannot be measured against a loss. Reimbursement and indemnity designs instead tie payment to proven expenses.

Question 8Group Insurance Fundamentals and General Provisions

What is the role of a group insurance trustee when a policy is established under a trust?

  1. To sell policies to individual consumers
  2. To hold the master policy on behalf of participating members Correct answer.
  3. To set statutory reserve requirements
  4. To audit the insurer's financial statements

Explanation

A trust arrangement allows a trustee to hold the master policy for the benefit of a group whose members may change over time. This is common for associations and multi-employer plans that lack a single employer policyholder. The trustee acts in a fiduciary capacity for the participants.

Question 9Group Insurance Fundamentals and General Provisions

A group policy states that coverage for a new employee begins on the first day of the month following 30 days of employment. An employee hired on March 10 with continuous employment begins coverage on which date?

  1. April 1 Correct answer.
  2. April 10
  3. March 31
  4. May 1

Explanation

The 30-day waiting period ends on April 9, so the first day of the following month is May 1 only if the wait had ended in April after the first. Here the employee completes 30 days on April 9, and the first day of the month following completion is May 1. Careful reading shows the correct answer is the first of the month after the wait ends.

Question 10Group Insurance Fundamentals and General Provisions

An employer's group plan uses a 90-day probationary period and monthly entry dates. A worker hired January 15 completes probation on April 15. What is the earliest entry date?

  1. April 15
  2. July 1
  3. May 1 Correct answer.
  4. April 1

Explanation

The employee finishes the 90-day probation on April 15, which is after the April 1 entry date. The next monthly entry date is therefore May 1. Coverage cannot begin before the eligibility requirements are satisfied.

Question 11Group Insurance Fundamentals and General Provisions

Why do group insurers commonly require a minimum participation percentage for contributory plans?

  1. To ensure enough healthy lives to balance the risk pool Correct answer.
  2. To eliminate the need for a probationary period
  3. To guarantee the employer a profit
  4. To satisfy state minimum wage requirements

Explanation

When employees share the cost, some may decline coverage, and those who decline may be disproportionately healthy. A minimum participation requirement ensures a broad mix of risks so the group rate remains credible. Non-contributory plans generally require full participation instead.

Question 12Group Insurance Fundamentals and General Provisions

An employee waives group coverage during the initial enrollment period. Under a typical late-enrollment provision, what is required to enroll later?

  1. Nothing, because eligibility never expires
  2. Evidence of insurability acceptable to the insurer Correct answer.
  3. A written waiver from the employer
  4. Payment of retroactive premiums for the waiver period

Explanation

A person who declines coverage when first eligible is treated as a late enrollee and may need to provide evidence of insurability to enroll later. This guards against individuals seeking coverage only after health problems arise. Some plans also impose a waiting period before late-enrollee coverage takes effect.

Question 13Group Insurance Fundamentals and General Provisions

What is the function of a policy effective date and anniversary date in group insurance?

  1. They mark the start of coverage and the annual review point for rates and terms Correct answer.
  2. They determine the beneficiary's tax bracket
  3. They fix the employee's retirement age
  4. They set the date claims must be filed

Explanation

The effective date is when the master contract begins, and the anniversary date recurs annually as the reference point for renewal, rate review, and plan changes. Insurers use the anniversary to reassess experience and adjust terms. Claim filing deadlines and tax matters are governed by other provisions.

Question 14Group Insurance Fundamentals and General Provisions

A group health plan covers 200 employees. Which provision allows the insurer to adjust the premium at renewal based on the group's claims experience?

  1. The incontestability clause
  2. The grace period
  3. The conversion privilege
  4. The experience rating provision Correct answer.

Explanation

Experience rating adjusts future premiums to reflect the group's own claim history and demographic changes. It is a core element of group insurance pricing for larger groups. Incontestability, conversion, and grace periods address entirely different contractual concerns.

Question 15Group Insurance Fundamentals and General Provisions

What does a group policy's grace period permit?

  1. Cancellation of coverage without notice
  2. An extension of the probationary period
  3. A delay in the effective date for new hires
  4. Continued coverage for a limited time after a premium due date passes Correct answer.

Explanation

A grace period keeps coverage in force for a specified number of days after the premium due date, allowing payment to arrive without a lapse. If the premium remains unpaid at the end of the grace period, the policy may terminate. The length of the grace period is stated in the contract.

Question 16Group Insurance Fundamentals and General Provisions

Which statement best describes the incontestability clause in a group life policy?

  1. The insurer may cancel coverage at any time for any reason
  2. The insured may return the policy for a full refund
  3. The beneficiary may change the policy terms
  4. After a stated period, the insurer cannot contest the policy for misstatements except for nonpayment of premium Correct answer.

Explanation

After the contestable period, typically two years, the insurer generally cannot deny a claim based on misstatements in the application, though nonpayment of premium remains a valid ground. The clause provides certainty for the policyholder and beneficiaries. It does not create a right to cancel or to alter terms.

Question 17Group Insurance Fundamentals and General Provisions

A covered employee terminates employment. Which provision may allow that person to obtain an individual policy without new evidence of insurability?

  1. The subrogation clause
  2. The misstatement of age provision
  3. The conversion privilege Correct answer.
  4. The reinstatement provision

Explanation

The conversion privilege lets a terminating member convert group coverage to an individual policy within a stated window, often without proving insurability. The premium for the converted policy reflects individual rates. Reinstatement, subrogation, and age misstatement address unrelated issues.

Question 18Group Insurance Fundamentals and General Provisions

What does a misstatement of age provision allow an insurer to do?

  1. Void the policy from inception in all cases
  2. Deny all claims regardless of the contestable period
  3. Adjust the benefit or premium to what the correct age would have produced Correct answer.
  4. Increase the probationary period retroactively

Explanation

If an insured's age was misstated, the insurer adjusts the benefit amount or premium to what the correct age would have purchased. This equitable adjustment avoids forfeiture of coverage. Voiding the policy is not the standard remedy for an age error.

Question 19Group Insurance Fundamentals and General Provisions

Which of the following best explains why group insurance premiums are often lower than individual premiums for comparable benefits?

  1. Group insurers are exempt from state regulation
  2. Group policies never pay commissions
  3. Administrative costs are spread over many members and underwriting is done at the group level Correct answer.
  4. Group members are guaranteed to be healthier

Explanation

Group coverage spreads administrative expenses across a large membership and avoids the cost of individual medical underwriting. These economies, along with group-level risk assessment, generally produce lower per-person costs. Regulatory exemptions and guaranteed health are not accurate explanations.

Question 20Group Insurance Fundamentals and General Provisions

An employer with 40 eligible employees wants a contributory group life plan. Why might the insurer set a minimum participation requirement of 75 percent?

  1. To comply with federal wage withholding rules
  2. To ensure the employer cannot terminate the plan
  3. To prevent a small, self-selected group of higher-risk employees from dominating the pool Correct answer.
  4. To reduce the number of certificates the insurer must print

Explanation

In a contributory plan, employees choose whether to join, so the insurer needs broad participation to avoid a pool skewed toward those who expect to claim. A minimum percentage requirement addresses this selection risk. Printing costs and tax withholding are not the rationale.

Question 21Group Insurance Fundamentals and General Provisions

A group policy states that a member's coverage ends on the date employment terminates, but the member is totally disabled at that time. What does a typical extension-of-coverage provision do?

  1. It immediately converts the coverage to an individual policy at group rates
  2. It cancels all pending claims
  3. It refunds the member's contributions
  4. It continues coverage while the disability lasts, subject to policy conditions Correct answer.

Explanation

Many group policies extend coverage for a member who is disabled when employment ends, sometimes until the disability ends or a stated maximum period. This prevents an abrupt loss of protection at the worst possible time. The exact terms and duration vary by policy.

Question 22Group Insurance Fundamentals and General Provisions

Why does the master contract's agency relationship with the employer matter for enrollment administration?

  1. The employer assumes the insurer's solvency risk
  2. The employer must pay all claims from its own funds
  3. The employer acts for the insurer in enrolling eligible employees and collecting premiums Correct answer.
  4. The employer becomes a licensed insurer

Explanation

In group insurance the employer typically performs administrative functions such as determining eligibility, enrolling members, and remitting premiums on the insurer's behalf. This delegated administration is efficient but creates duties the employer must perform accurately. The employer does not become an insurer or assume solvency risk.

Question 23Group Insurance Fundamentals and General Provisions

A group plan's eligibility rules exclude temporary and seasonal workers. Which underwriting concern most directly justifies this exclusion?

  1. Temporary workers are prohibited from holding any insurance
  2. Excluding them reduces the employer's tax liability
  3. Seasonal workers always have pre-existing conditions
  4. Short tenure produces high turnover and unpredictable claim experience Correct answer.

Explanation

High-turnover populations generate unstable and often unfavorable claim experience, and temporary or seasonal workers may not remain long enough to justify enrollment costs. Excluding them stabilizes the group's risk profile. Blanket prohibitions and tax motives are not accurate justifications.

Question 24Group Insurance Fundamentals and General Provisions

What is the primary reason group contracts include a provision requiring the employer to report changes in membership promptly?

  1. Premium and coverage must track the actual covered population Correct answer.
  2. The employer must verify each member's medical history
  3. The insurer needs the data for marketing purposes
  4. State law requires monthly public disclosure

Explanation

Group premiums and benefit obligations depend on the number and characteristics of covered members, so timely reporting keeps billing and coverage accurate. Delayed reporting can cause premium shortfalls and disputes at claim time. Marketing and public disclosure are not the purpose of the provision.

Question 25Group Insurance Fundamentals and General Provisions

Which combination best reflects the relationship among the master policy, the certificate, and the member's rights?

  1. The certificate is the contract; the master policy is only a marketing document
  2. The member's rights arise only from the employer's handbook
  3. The master policy is the contract; the certificate summarizes coverage but does not create separate rights Correct answer.
  4. Both documents are separate contracts with independent terms

Explanation

The master policy is the binding contract between insurer and policyholder, while certificates evidence individual coverage under it. A certificate does not create rights beyond those in the master policy. Handbooks summarize but do not control the contractual terms.

Question 26Group Insurance Fundamentals and General Provisions

In group insurance, who is the policyholder that holds the master contract with the insurer?

  1. The sponsoring employer or other eligible entity Correct answer.
  2. The insurance agent who sold the plan
  3. The state insurance department
  4. The individual covered member

Explanation

Group insurance is issued to a single entity that sponsors coverage for a defined class of members, and that entity is the policyholder holding the master contract. Covered individuals receive certificates but are not parties to the contract.

Question 27Group Insurance Fundamentals and General Provisions

What is the primary purpose of the master policy in a group insurance arrangement?

  1. To set out the contract terms between the insurer and the policyholder Correct answer.
  2. To replace the need for any enrollment records
  3. To serve as proof of coverage for each member's beneficiaries
  4. To list each member's individual medical history

Explanation

The master policy is the contract document that states the insurer's and policyholder's obligations, including eligibility, benefits, and administrative duties. Certificates summarize that contract for members but do not replace it.

Question 28Group Insurance Fundamentals and General Provisions

Which term describes the practice of an insurer accepting a group of members based largely on the characteristics of the whole group rather than on individual evidence of insurability?

  1. Group underwriting Correct answer.
  2. Individual underwriting
  3. Reinsurance cession
  4. Retroactive liability

Explanation

Group underwriting evaluates the risk of the entire membership, relying on group size, participation, and composition instead of individual medical evidence. This is what allows many group plans to avoid individual proof of insurability.

Question 29Group Insurance Fundamentals and General Provisions

What does a member's certificate of insurance primarily do?

  1. Guarantees the insurer will never raise premiums
  2. Summarizes the member's coverage and rights under the master contract Correct answer.
  3. Transfers ownership of the policy to the member
  4. Sets the premium rate the employer must pay

Explanation

A certificate is evidence that the member is covered and describes the benefits, exclusions, and conditions that apply to that person. It does not alter the master contract or shift ownership of the policy.

Question 30Group Insurance Fundamentals and General Provisions

A group policy defines an eligible class as full-time employees working at least 30 hours per week. A part-time worker averaging 20 hours weekly asks to enroll. What is the correct outcome under the policy terms?

  1. The worker is outside the eligible class and cannot be enrolled under this policy Correct answer.
  2. The worker may enroll after paying double premium
  3. The worker may enroll only if the insurer waives the class definition
  4. The worker must be enrolled because all employees are eligible

Explanation

Eligibility rules define which persons the contract covers, and someone outside the defined class cannot be added merely by requesting coverage. The insurer and policyholder must amend the contract to change the class.

Question 31Group Insurance Fundamentals and General Provisions

An employer's group plan states that coverage terminates when a member's employment ends, but continues for a member who is totally disabled at that time until the disability ends or a stated age is reached. What is this extension commonly called?

  1. Waiver of premium for payor
  2. Coordination of benefits provision
  3. Disability extension provision Correct answer.
  4. Conversion privilege

Explanation

A disability extension keeps coverage in force beyond the normal termination event when the member is disabled, typically for a limited period or until a stated age. It differs from conversion, which provides a new individual policy.

Question 32Group Insurance Fundamentals and General Provisions

Under a typical group life conversion privilege, what must a member who loses eligibility generally do to obtain an individual policy without evidence of insurability?

  1. Wait until the next policy anniversary before applying
  2. Apply within a specified period and pay the required premium Correct answer.
  3. Obtain written consent from all other group members
  4. Prove good health through a medical examination

Explanation

The conversion privilege allows a departing member to buy an individual policy without proving insurability if the application and premium are submitted within the time limit stated in the contract. Missing the deadline forfeits the privilege.

Question 33Group Insurance Fundamentals and General Provisions

A group plan states that if a member's age was misstated, benefits will be adjusted to the amount the premium paid would have purchased at the correct age. What is the effect of this provision?

  1. The member must pay a penalty equal to the benefit difference
  2. The employer becomes personally liable for the shortfall
  3. The policy is voided and all premiums are refunded
  4. The insurer adjusts the benefit rather than canceling coverage Correct answer.

Explanation

A misstatement of age provision corrects the benefit to what the premium would have bought at the true age instead of rescinding the coverage. This protects both parties from forfeiture over an honest error.

Question 34Group Insurance Fundamentals and General Provisions

A group life policy contains an incontestability clause. After the contestable period has run, on what basis may the insurer generally still deny a claim?

  1. The member failed to pay the required premium Correct answer.
  2. The member misstated age, which triggers benefit adjustment
  3. The member omitted a minor medical detail on the enrollment form
  4. The employer miscounted the number of dependents

Explanation

Incontestability bars the insurer from challenging the validity of coverage for misstatements after the contestable period, but nonpayment of premium remains a valid ground to deny or terminate coverage. Age misstatements are handled by benefit adjustment rather than denial.

Question 35Group Insurance Fundamentals and General Provisions

A group policy requires that the employer remit premium to the insurer by the first of each month. What is the standard consequence when the employer pays late but within the grace period?

  1. Members must pay the premium themselves to keep coverage
  2. Coverage remains in force during the grace period Correct answer.
  3. Coverage lapses immediately on the due date
  4. The insurer cancels the master policy automatically

Explanation

A grace period allows the policy to stay in force for a stated time after the premium due date, so late payment within that window does not interrupt coverage. If payment is not made by the end of the grace period, the policy may terminate.

Question 36Group Insurance Fundamentals and General Provisions

A group health plan covers 150 employees. At renewal, the insurer reviews the group's claims experience and adjusts the rate. Which characteristic of group insurance does this illustrate?

  1. Permanent individual rate guarantees
  2. Guaranteed issue for all future hires
  3. Individual policy conversion at retirement
  4. Annual experience rating of the group as a whole Correct answer.

Explanation

Group premiums are commonly reviewed at renewal using the experience of the entire group, so rates can rise or fall based on claims and other factors. This reflects group-level rather than individual underwriting.

Question 37Group Insurance Fundamentals and General Provisions

An insurer requires a minimum participation level for a contributory group plan. What risk is the insurer chiefly trying to control?

  1. Failure of the employer to name a trustee
  2. Adverse selection caused by voluntary enrollment Correct answer.
  3. Loss of the policyholder's tax deduction
  4. Excessive administrative paperwork

Explanation

When members pay part of the premium, those who expect to need coverage are more likely to enroll, creating adverse selection. Requiring broad participation spreads risk across healthy and unhealthy members alike.

Question 38Group Insurance Fundamentals and General Provisions

A group plan has a late-enrollment rule allowing an employee who declined coverage to enroll later only by providing evidence of insurability. Why does the insurer impose this requirement?

  1. To prevent members from enrolling only after they become ill Correct answer.
  2. To ensure the employee has named a beneficiary
  3. To satisfy the employer's recordkeeping obligations
  4. To confirm the employee has completed the probationary period

Explanation

Without evidence of insurability, a member could wait until health problems appear and then enroll, which is adverse selection against the insurer. Requiring proof of health at late enrollment protects the risk pool.

Question 39Group Insurance Fundamentals and General Provisions

A group policy is issued under a trust arrangement in which a trustee holds the master contract for several participating employers. What function does the trustee serve?

  1. It assumes the employers' premium obligations personally
  2. It acts as policyholder and administers the plan on behalf of the participating employers Correct answer.
  3. It adjusts individual members' benefit amounts at claim time
  4. It replaces the insurer in paying claims

Explanation

In a trusteed arrangement the trustee is the legal policyholder that holds the contract and administers it for the employers and members in the trust. The insurer remains responsible for paying covered claims.

Question 40Group Insurance Fundamentals and General Provisions

An employer's group plan covers 25 employees, and the contract states that coverage for a new hire begins after a 60-day waiting period followed by entry on the first day of the next month. An employee hired on March 3 completes the waiting period on May 2. When does coverage begin?

  1. June 1 Correct answer.
  2. March 3
  3. May 3
  4. May 2

Explanation

The waiting period must be completed first, and coverage then starts on the next scheduled entry date after that completion. Because the waiting period ends May 2, the first day of the following month is June 1.

Question 41Group Life Insurance

Under a typical group life insurance plan, what is the primary purpose of the actively-at-work provision?

  1. It transfers the premium obligation from the employer to the employee
  2. It limits coverage to employees who are physically present at the workplace each day
  3. It requires an employee to be working for the employer on the day coverage becomes effective Correct answer.
  4. It caps the benefit amount based on the employee's current job duties

Explanation

The actively-at-work provision states that an employee must be on the job (not disabled, laid off, or on leave) on the effective date for coverage to begin. If the employee is not actively at work, coverage is generally delayed until the employee returns to work. This protects the insurer from covering already-disabled individuals at standard group rates.

Question 42Group Life Insurance

A group life plan is written as a yearly renewable term (YRT) contract. Which statement best describes how the premium is typically structured?

  1. The premium is fixed once at issue and never adjusted for claims experience
  2. The premium is paid solely by the employee with no employer contribution
  3. The premium is based on the attained age of the group members and rises as the group ages Correct answer.
  4. The premium stays level for the employee's entire working career

Explanation

Yearly renewable term group life charges a rate for one year of coverage and renews annually. Because mortality cost rises with age, premiums generally increase as the average age of the group increases. Rates may also be adjusted for the group's claims experience at renewal.

Question 43Group Life Insurance

Which document does a group life insurer issue to the employer to summarize the master contract's terms?

  1. A master policy held by the employer that outlines the plan's benefits and provisions Correct answer.
  2. A certificate of insurance filed with the state insurance department
  3. A beneficiary designation form filed by each participant
  4. An individual certificate delivered to each insured employee

Explanation

In group insurance the employer (policyholder) receives the master policy, which contains the full contract terms. Employees receive certificates that summarize their coverage under that master policy. The master policy is the controlling legal document.

Question 44Group Life Insurance

An employee's group life benefit is set at two times annual salary. The employee earns $55,000 per year. What is the face amount of coverage?

  1. $55,000
  2. $165,000
  3. $27,500
  4. $110,000 Correct answer.

Explanation

The benefit is a multiple of salary, so multiply the annual salary by the plan factor. Two times $55,000 equals $110,000 of coverage. The face amount is the death benefit payable if the insured dies while covered.

Question 45Group Life Insurance

What is the standard grace period for payment of premium on an individual life policy, and why does group life differ?

  1. Both individual and group life require payment on the due date with no grace period
  2. Individual life provides a 10-day grace period, while group life provides 45 days
  3. There is no grace period on individual life insurance, but group life has a 60-day grace period
  4. Individual life generally provides a 31-day grace period, while group life typically allows 31 days as well but the employer pays the premium Correct answer.

Explanation

Individual life policies commonly include a 31-day grace period during which coverage remains in force. Group life contracts typically also provide a grace period of about 31 days, and because the employer remits the premium, the grace period protects employees who are not personally paying. The coverage stays effective during this window.

Question 46Group Life Insurance

Which of the following best describes the conversion privilege in group life insurance?

  1. It allows a terminating insured to convert group coverage to an individual policy without proving insurability Correct answer.
  2. It converts the death benefit into an annuity for the beneficiary
  3. It lets the employer convert the group policy into an individual policy for all employees at once
  4. It permits the insurer to convert a term group plan into a permanent group plan

Explanation

The conversion privilege lets an insured whose group coverage ends obtain an individual policy without evidence of insurability. The individual policy is typically issued within a limited window after termination. This protects employees who lose group coverage, for example upon leaving employment.

Question 47Group Life Insurance

A group life policy includes a contributory plan. What does this mean?

  1. Premiums are paid only when a claim is filed
  2. The insurer contributes a portion of the premium
  3. The employer pays the entire premium with no employee contribution
  4. Employees pay part or all of the premium through payroll deduction Correct answer.

Explanation

A contributory group plan requires employees to share in the cost of coverage, usually through payroll deduction. Noncontributory plans are funded entirely by the employer. The distinction affects participation requirements, since contributory plans typically need a minimum percentage of eligible employees to enroll.

Question 48Group Life Insurance

What is the role of the group policyholder in a group life arrangement?

  1. The policyholder is the insurer that assumes the mortality risk
  2. The policyholder is the employer or entity that contracts with the insurer and holds the master policy Correct answer.
  3. The policyholder is the beneficiary who receives the death benefit
  4. The policyholder is the insured person whose life is covered

Explanation

The policyholder is the entity, usually the employer, that enters into the group contract with the insurer and holds the master policy. Individual employees are the insureds, and their designated beneficiaries receive benefits. The policyholder administers enrollment and remits premiums.

Question 49Group Life Insurance

An employer wants to add a new employee to the group life plan. Which requirement most directly determines whether coverage starts immediately?

  1. The employee must satisfy the eligibility waiting period and be actively at work Correct answer.
  2. The employee must have worked for the employer for at least five years
  3. The employee must name the employer as beneficiary
  4. The employee must complete a physical examination in all cases

Explanation

New employees become eligible after any probationary or waiting period defined in the plan and must be actively at work on the effective date. Evidence of insurability is generally not required for basic coverage within guaranteed issue limits. Late entrants above those limits may need to provide evidence.

Question 50Group Life Insurance

A group life contract contains a misstatement of age provision. What happens if the insurer discovers an employee's age was understated?

  1. The employer must pay a penalty equal to the death benefit
  2. The policy is voided retroactively and all premiums are refunded
  3. The benefit is adjusted to what the premium would have purchased at the correct age Correct answer.
  4. No adjustment is made because age is not material to group coverage

Explanation

The misstatement of age provision allows the insurer to adjust benefits to the amount the premium actually paid would have purchased at the correct age. It does not void the contract. This protects the insurer from overpaying while preserving coverage for the insured.