Chapter 8 Quiz
If an employer pays the entire premium for a group life insurance policy, the policy must insure what percentage of eligible employees? A) At least 40% B) 1 C) At least 75% D) At least 50%
1 Explanation If an employer pays the entire premium for a group life insurance policy, the policy must insure all eligible, insurable employees. However, if the employees contribute part of the premium, at least 75% of the eligible, insurable employees must enroll in the employer's group plan.
What minimum percentage of eligible employees must be insured under a noncontributory group life policy? A) 0.5 B) 0.25 C) 1 D) 0.75
1 Explanation If employees do not contribute to the cost of their group life insurance, the insurance must be available to all members of the group or to all employees.
Group life insurance policies include a probationary period requiring new employees to wait a certain time before they can enroll in the plan. How long is the typical range for these probationary periods? A) 1 to 12 months B) 10 to 25 days. C) 18 to 24 months D) 30 to 45 days.
1 to 12 months Explanation During the probationary period, employees are not covered. The employer picks the time period, which is typically between 1 and 12 months, and it applies to all eligible employees without discrimination.
If an employer group plan is contributory, most states require that at least A) 50% of the eligible employees participate B) 85% of the eligible employees participate C) 65% of the eligible employees participate D) 75% of the eligible employees participate
75% of the eligible employees participate Explanation In a contributory group plan, the employer pays part of the premium. Most states require that at least 75% of the eligible employees participate in the contributory plan.
If a company has 1,000 employees who are eligible for a contributory group health insurance program, how many would be required to participate? A) 750 B) 1000 C) 1500 D) 500
750 Explanation In most states, if a group health insurance plan is contributory, 75% of eligible persons must be insured.
Which of the following is NOT an eligible group to obtain group life insurance? A) A multiple employer trust B) A neighborhood investment club C) A labor union D) A trade or professional association
A neighborhood investment club Explanation Group life insurance is limited to employer groups, multiple employer trusts, labor unions, group credit life insurance, and association plans.
A group life insurance plan participant who has been covered under the plan for 4 years terminates employment on October 1. On October 22 she dies without having made a decision whether to convert her group coverage to an individual policy. What action will the insurer take? A) Assume that the deceased employee would have elected the conversion option and pay the death benefit without regard for the deceased employee's insurability prior to death B) No action, because the employee had not elected the conversion option C) Underwrite the deceased employee to determine if she would have been insurable and, if so, pay the death benefit to the beneficiary D) Underwrite the deceased employee to determine if she would have been insurable and, if so, give the beneficiary the option of exercising the conversion privilege and buying a policy on his life
Assume that the deceased employee would have elected the conversion option and pay the death benefit without regard for the deceased employee's insurability prior to death Explanation If a terminated employee dies during the conversion period without having attempted to convert her life coverage, insurers must presume the deceased would have elected to convert before the end of the conversion period if the death had not occurred. Death benefits are therefore still payable.
Which of the following statements regarding both individual credit life insurance and group credit life insurance is NOT correct? A) Both policies would typically be decreasing term policies. B) Both policies are used to pay off debt if the insured dies before doing so. C) Both policies are typically medically underwritten. D) Both policies may end at the payoff of the debt.
Both policies are typically medically underwritten. Explanation A debt may be secured by either an individual or a group credit life policy. The group product is sold by the creditor to any of the debtors and is a guaranteed-issue (not underwritten) product. The individual policy, on the other hand, would be underwritten by the insurer and the debtor would have to qualify for the coverage. Both policies are typically decreasing term, will pay off the debt if the insured dies before doing so, and may be ended at the payoff of the debt.
Which of the following statements regarding group health coverage is NOT correct? A) The insured employee receives a certificate of coverage. B) The employer contracts with the insurer for group coverage, and the employee may contribute to the premium. C) Both the policyowner and the insured receive a copy of the master policy. D) The employer is the policyowner.
Both the policyowner and the insured receive a copy of the master policy. Explanation Employees covered by a group health plan do not receive a copy of the master contract or policy. The employer is the policyowner and receives the master contract. The employee receives a certificate of coverage as proof of insurance coverage.
The individuals who are insured under a group life contract are given which of the following as evidence of their coverage? A) Certificates of authority B) A replacement notice C) Certificates of insurance D) The insurance policy
Certificates of insurance Explanation The individuals who are insured under the contract (typically, employees or others who have a specific relationship to the policyowner) are given certificates of insurance as evidence of their coverage.
Which of the following types of life insurance covers the life of a debtor in connection with a specific loan? A) Credit life B) Replacement C) Long-term care D) Credit disability
Credit life Explanation Credit life insurance covers the life of a debtor. Credit life insurance and credit disability insurance cover debtors of a creditor in connection with a specific loan or other credit transaction. Credit disability insurance provides payments on loans that become due while the debtor is disabled.
Madison, who is 27, is interested in purchasing a car from the local dealership. What kind of insurance might be included when she finances her car? A) Credit life insurance B) Convertible term insurance C) Universal life insurance D) Variable life insurance
Credit life insurance Explanation Auto dealerships offer credit life insurance and include the premium as part of the car loan. If Madison should die before paying off her loan, the dealership will receive the amount of life insurance necessary to pay off the outstanding debt.
Which of the following statements regarding group credit life insurance is NOT correct? A) When a debt or loan has been repaid, the policy ceases to provide coverage. B) Depending on the loan amount, evidence of insurability may be required. C) Premiums on a group policy are less expensive than premiums charged for individual policies. D) The insurance amount is equal to the loan amount or debt owed.
Depending on the loan amount, evidence of insurability may be required. Explanation One of the benefits of group credit life insurance is that evidence of insurability is usually not required.
Which of the following statements regarding employee eligibility for group benefits is TRUE? A) Age and sex determine eligibility B) An employee on disability leave is eligible for group benefits C) Union workers may not be excluded D) Employees must be actively at work
Employees must be actively at work Explanation Employers may establish employment criteria stating that an employee must be actively at work and not on disability leave.
Which of the following statements comparing group and individual life insurance is NOT true? A) Individual insurance is generally available at lower rates than group insurance. B) The employer selects the type of insurance coverage under a group plan, while an individual selects the coverage for an individual policy. C) Individual underwriting and individual evidence of insurability are generally not required under a group plan. D) Group insurance involves experience rating for establishing premiums.
Individual insurance is generally available at lower rates than group insurance. Explanation Group insurance is provided at lower rates than individual insurance, primarily because of the lower administrative, operational, and selling expenses associated with group contracts. Because most employers pay all or part of the group premium, individual insureds are able to have insurance coverage for far less than what they would pay for an individual or personal plan.
What is credit life insurance? A) Life insurance that is credited to the policyholder's account B) Insurance that covers a debtor's life and will help provide funds to pay off a loan if the debtor dies before the loan is repaid C) Life insurance purchased with a major bank credit card D) Life insurance purchased on credit, with the money due at a later date
Insurance that covers a debtor's life and will help provide funds to pay off a loan if the debtor dies before the loan is repaid Explanation Credit life insurance is insurance on the life of a debtor in connection with a specific loan or other credit transaction. The amount of credit life insurance may not exceed the initial indebtedness.
Shiyuan, while in the process of converting her group life insurance to an individual policy, dies. What happens to the claim her beneficiary submits? A) It is paid under the new individual policy. B) It is paid under the old group plan. C) It is not paid by either policy. D) It is paid pro rata by both plans.
It is paid under the old group plan. Explanation If the person insured under the group life insurance policy dies while eligible for conversion but before the individual policy becomes effective, the amount of life insurance that she would have been entitled to have issued under the individual policy is payable as a claim under the group policy, whether or not the individual application or payment of the first premium has been made.
In which of the following situations might Gabriela be eligible for group credit insurance? A) She recently purchased a car and financed it through the dealership. B) She recently paid off her car loan and has excellent credit. C) She recently purchased a new car, paying cash. D) She is an employee of a car dealership and wants to buy credit insurance through the dealership.
She recently purchased a car and financed it through the dealership. Explanation If the dealership offers credit insurance to its customers, Gabriela will likely be eligible for this coverage. She will not be eligible simply by being an employee of the dealership, paying off her outstanding loan, or paying cash.
Which of the following statements regarding group life insurance is FALSE? A) The premium is based on the insured's attained age at the time of conversion. B) Conversion must be done within 31 days from the date coverage is lost. C) The converted policy must be a term insurance policy, not permanent insurance. D) No proof of insurability is required.
The converted policy must be a term insurance policy, not permanent insurance. Explanation When a certificate holder converts from a group life insurance policy to an individual policy, the converted policy must be permanent insurance, not term insurance.
Which of the following statements about a contributory group life insurance plan is CORRECT? A) All eligible employees must participate in the plan. B) The employer must pay for the entire cost of the insurance program. C) At least 70% of eligible employees must participate in the plan. D) The employees must pay for part of the cost of the insurance program.
The employees must pay for part of the cost of the insurance program. Explanation In a contributory group life insurance plan, employees must pay for part of the cost of the insurance. Payments are usually made through payroll deductions.
Which of the following statements about the group conversion option is NOT true? A) The member can convert to any type of insurance except term insurance. B) Group life policies must include a conversion privilege. C) The option guarantees the member that coverage will continue for 60 days. D) If the member dies during the conversion period, the insurer will pay the death benefit in full.
The option guarantees the member that coverage will continue for 60 days. Explanation The option guarantees the member that coverage will continue for 31 days.
Which of the following factors is the most pronounced difference between group and individual insurance plans? A) Premium rates B) Underwriting process C) Customization of coverage for individuals D) Renewability
Underwriting process Explanation The most pronounced difference between group and individual insurance lies in the underwriting process. In the case of group plans, once the group is approved, all members are eventually included. In the case of an individual policy, a key factor is the insured's ability to qualify for coverage and obtain it at an affordable rate.
All of the following groups would be eligible for group insurance EXCEPT A) an employer-employee group B) a labor union C) a family of 10 D) a trade association
a family of 10 Explanation Family members are not considered groups for the purposes of group insurance.
If an employer pays all the premiums for a group life insurance policy, the policy must insure A) at least 50% of the eligible employees B) at least 75% of the eligible employees C) at least 40% of the eligible employees D) all eligible employees
all eligible employees Explanation If an employer pays all the premiums for a group life insurance policy, the policy must insure all eligible, insurable employees. However, if the employees contribute all of the premiums, the policy may be placed in force if at least 75% of the then-eligible, insurable employees elect to make the required contributions.
One reason a plan may require employees to sign up within 31 days after the probationary period is to A) charge higher premiums B) avoid adverse selection C) discriminate based on age D) require medical exams
avoid adverse selection Explanation Plans require employees to sign up with 31 days after the probationary period to avoid adverse selection. By limiting the number of days between eligibility and enrollment, insurers reduce the probability of claims.
All of the following are characteristics of group life insurance EXCEPT A) the employee designates the beneficiary B) each insured in the group receives a policy C) certificates of insurance provide a summary of benefits D) the employer is the policyowner
each insured in the group receives a policy Explanation A distinguishing characteristic of group life insurance is its use of a master contract that sets forth the terms and conditions between the insurance company and the policyowner, who is the employer. Those covered by the contract—the employees—do not receive individual policies and are not parties to the contract. Each insured instead receives a certificate of insurance and has the right to name beneficiaries.
The premium cost for group insurance is generally based on A) administrative costs B) turnover rate of employees C) experience rating D) community rating
experience rating Explanation The premium cost is generally based on experience rating. Claims history and large homogeneous groups help to determine more accurate mortality and morbidity rates.
Jerome's Jazz and Juice Bar offers group life insurance on a contributory basis. How many of Jerome's employees must participate in the plan? A) 0.5 B) 0.95 C) 0.9 D) 0.75
0.75 Explanation Group life insurance policies may be contributory (requiring the employees to help fund the plan) or noncontributory (funded entirely by the employer). If a plan is contributory, employee participation in the plan cannot be mandatory. However, at least 75% of the eligible employees must elect to participate. Noncontributory plans must cover 100% of the eligible employees.
If a group life insurance plan is contributory, what minimum percentage of eligible employees must participate? A) 1 B) 0.6 C) 0.5 D) 0.75
0.75 Explanation In a contributory plan (one in which the employees must contribute to the cost of the insurance), 75% of the eligible employees must participate.
A company has 1,200 eligible employees for its group life insurance program, and the company pays the total premium. How many employees must be insured to initiate the plan? A) 1,000 employees B) 600 employees C) 900 employees D) 1,200 employees
1,200 employees Explanation If a group life insurance plan is noncontributory, 100% of eligible persons must be insured.
Generally speaking, how many days does a certificate holder have to convert to an individual policy? A) 10 B) 60 C) 31 D) 45
31 Explanation Typically, a certificate holder has 31 days to convert from a group policy to an individual life policy. The number of days may vary from state to state, so it is important to refer to your specific state supplement.
Who is most likely to offer group credit life insurance? A) A car dealership B) A restaurant C) A shoe store D) A local florist
A car dealership Explanation A car dealership is most likely to offer group credit life insurance as a form of collateral which guarantees that if the owner of the care dies, the dealership, who is the beneficiary, will be compensated for the remaining balance.
When an employer establishes a group insurance plan, what evidence of insurance may each participating employee receive? A) An insurance notice B) A certificate of insurance C) A coverage form D) A letter of confirmation
A certificate of insurance Explanation When an employer establishes a group insurance plan, each participating employee receives or may request a certificate of insurance outlining coverage. The employer, as the policyowner, receives the master contract.
Which of the following groups is least likely to be eligible for coverage through a group health plan? A) A professional association that wishes to provide coverage for members nationally B) A group of neighbors who wish to insure themselves and their families C) An automobile manufacturer that will offer coverage to its customers D) A college alumni association that offers coverage for member alumni
A group of neighbors who wish to insure themselves and their families Explanation To qualify, the members must be a natural group formed for a purpose other than to obtain insurance. As a result, families in a neighborhood will likely not qualify.
Which of the following statements regarding group insurance is INCORRECT? A) Two or more labor unions may join together to provide group insurance for collective members. B) Tax advantages are available to small employers in the same or similar industries who form trusts to provide insurance for employees. C) Group insurance plans sponsored by a business are sometimes referred to as employer group plans. D) Group life insurance premiums are less expensive than premiums for individual insurance policies.
Group insurance plans sponsored by a business are sometimes referred to as employer group plans. Explanation Group insurance plans sponsored by a business are sometimes referred to as employee, not employer, group plans.
Which of the following statements about group and individual life insurance is CORRECT? A) Group plans issue separate contracts to each insured individual. B) Group plans require individual underwriting and evidence of insurability. C) Group plans involve experience rating, while individual policies require individual underwriting and evidence of insurability. D) Group plans typically have higher premiums per unit of benefits than individual insurance.
Group plans involve experience rating, while individual policies require individual underwriting and evidence of insurability. Explanation Group insurance involves experience rating, which is a method of establishing a premium for the group based on the group's previous claims experience. In contrast, individual policies require individual underwriting and evidence of insurability. Another characteristic of group insurance is that, per unit of benefits, it is available at lower rates than individual insurance, due primarily to the lower administrative, operational, and selling expenses associated with group contracts./
Which of the following is least likely to sponsor group credit life insurance plans? A) Mortgage companies B) Credit card companies C) Car dealerships D) Local grocery stores
Local grocery stores Explanation Credit life insurance covers a debt amount owed to a lender so that if the borrower dies, the lender will receive the amount of life insurance to pay off the outstanding debt. Group credit insurance is more likely to be sponsored by car dealerships, credit card companies, and mortgage companies.
A trust that is formed by a group of smaller employers in the same or similar industries is known as a A) MET B) union C) MEWA D) association
MET Explanation A multiple employer trust or MET is a group of employers engaged in the same or similar types of industries.
Which of the following statements with regard to group term life insurance is CORRECT? A) Most group term policies contain a conversion privilege, allowing insureds to convert the coverage to an individual plan if they leave the group. B) Premiums paid by the employer are tax deductible by the employer and taxable to the employee. C) Group insurance plans must be noncontributory. D) Since group term coverage is an employee benefit, employers can select which employees will be covered.
Most group term policies contain a conversion privilege, allowing insureds to convert the coverage to an individual plan if they leave the group. Explanation Employers who provide group term life insurance plans cannot discriminately limit participation, nor can they arrange the plans to favor key employees. Any premiums paid by the employer are not considered taxable income to the covered employee, though they are deductible by the employer. Group plans may be contributory or noncontributory.
What is credit life insurance? A) Policies that cover payment of a debt if the debtor dies B) Life insurance purchased through credit card solicitation C) Credit given to policyholders who consistently pay their premiums on time D) Insurance offered on credit when the policyholder is unable to pay premiums
Policies that cover payment of a debt if the debtor dies Explanation Credit life insurance is insurance on the life of a debtor, written in connection with a loan or other credit transaction for a period of no longer than 10 years.
Which of the following statements regarding conversion is TRUE? A) The converted policy must be term insurance. B) Conversion must be within 45 days from the date coverage is lost. C) The converted policy may be any amount the insured chooses. D) Premiums are based on the attained age at conversion.
Premiums are based on the attained age at conversion. Explanation When a group policy is converted, the premium will be based on the insured's attained age. Conversion must be within 31 days from the date coverage is lost, must be the same coverage amount, and must be a permanent, not term, policy. Lastly, no proof of insurability is required.
What is one of the advantages of purchasing an individual credit life insurance policy? A) Individual policy premiums may be lower than those for group coverage. B) The policy is sponsored by the lender. C) No evidence of insurability is required. D) The policy can continue in force even after the loan has been paid off.
The policy can continue in force even after the loan has been paid off. Explanation An individual credit life insurance policy may remain in force beyond repayment of the loan. Also, the death benefit is allowed to exceed the amount of the debt or loan, whereas with a group policy, the amount of insurance is equal to the amount owed.
All of the following types of groups are eligible for group life insurance EXCEPT A) trade association groups B) labor union groups C) employer group plans D) a group of creditors
a group of creditors Explanation Group credit life insurance is provided for its group of debtors. The other types of groups are employer group plans, multiple employer trusts, labor unions, professional associations and trade associations.
All of the following are likely to appear on a group participant's certificate of insurance EXCEPT A) a summary of benefits B) an individual's certificate number C) a physician's address D) a beneficiary designation
a physician's address Explanation Group policies are underwritten as a whole, rather than on each individual member. Evidence of coverage under a master policy is given to employees in the form of a certificate of insurance. The information on the certificate includes a summary of the plan benefits, the group or certificate number, and the designated beneficiary's name.
The period of time a new employee has to wait before she may enroll in a group life insurance plan is called A) an enrollment period B) a probationary period C) a discrimination period D) an elimination period
a probationary period Explanation New employees must wait a certain period of time before they may enroll in a group insurance plan. This period is called the probationary period, and the amount of time is chosen by the employer. The probationary period must apply to all eligible employees.
Group life insurance plans in which employees contribute to the overall premium are called A) participatory B) contributory C) group underwritten D) noncontributory
contributory Explanation When employees contribute to the premium payable for a group life insurance contract, the plan is called contributory.
All of the following groups are eligible for group insurance EXCEPT A) groups that exist solely in order to purchase insurance B) small employers within the same industry who self-fund a plan C) trade or professional associations D) collective members of a labor union
groups that exist solely in order to purchase insurance Explanation Eligible groups include employer-sponsored groups, trade or professional associations, and labor unions. Multiple employer trusts (METs), multiple employer welfare arrangements (MEWAs), and lender groups are also eligible. However, a group cannot be formed only for the purpose of buying insurance.
When credit life or health insurance is required to secure a debt, the debtor must A) buy required coverage directly from the loan institution itself B) purchase the required coverage from the loan institution's insurer C) have the option of getting required coverage from existing coverage or from any authorized insurer D) have the option of buying federal government credit coverage through the Social Security Administration
have the option of getting required coverage from existing coverage or from any authorized insurer Explanation If a creditor requires credit life or health insurance as additional security on a debt, the debtor must be given the option of furnishing the required insurance through existing coverage owned by the debtor or by purchasing coverage from any authorized insurer.
Which of the following is LEAST likely to appear on a group insurance application? A) beneficiary designation B) Social Security number C) address D) medical questions
medical questions Explanation Information such as name, address, Social Security number and beneficiary designations are on applications for group health insurance. Since underwriting is focused on the group rather than the individual, medical questions are the least likely to appear on the form.
Under a group life insurance plan, each employee has the right to A) an insurance illustration B) dispute the premium C) name their beneficiary D) an individual policy
name their beneficiary Explanation Each employee is a certificate holder and has the right to name their beneficiary.
In group insurance plans, if the plan is noncontributory, the employer A) is allowed to select the employees who may participate in the plan B) pays the entire premium C) pays none of the premium D) must limit plan enrollment to 5 or fewer employees
pays the entire premium Explanation Noncontributory plans are so classified because the employer pays the entire premium. Covered employees do not contribute to the cost of the plan, although they may pay an extra premium to cover their dependents under the plan. Conversely, a contributory plan is one in which both the employer and the employee pay a portion of the premium.
With group life insurance policies, standard provisions that apply to employees who join during the open enrollment period typically include all of the following EXCEPT A) a grace period B) providing proof of insurability C) conversion rights D) misstatement of age
providing proof of insurability Explanation Providing proof of insurability may be required if the employee joins the group plan after the enrollment period, but it is not required when the employee joins the plan during the normal enrollment period. The other answer choices are all standard provisions with group life policies.
When indebtedness is discharged before the scheduled maturity date, credit insurance is A) prorated for the actual length of the payment period, with premiums adjusted accordingly B) terminated and a refund is paid to the insured C) extended for the length of the loan, at additional cost to the insured D) transferred to another debt that is still owed
terminated and a refund is paid to the insured Explanation When a debt is paid off before the scheduled maturity date, through renewal or refinancing, the insurance coverage must be ended and a refund paid to the insured./
Typically, a contract for group life insurance is issued to A) the producer who sold the policy B) the employer C) the employee D) the insurer
the employer Explanation A contract for group life insurance is issued to the policyowner (typically, an employer). The individuals who are insured under the contract (typically, employees or others who have a specific relationship to the policyowner) may be given certificates of insurance as evidence of their coverage.
A master policy is issued to the sponsoring group and the policyholder is A) the employer B) the producer C) the insurer D) the employee
the employer Explanation The policyholder is the applicant, which is the employer applying on behalf of the employees for group insurance. The policyholder receives the master policy and the employees receive a certificate of insurance.
In writing group insurance, insurance companies use all of the following underwriting criteria EXCEPT A) the age and sex of the individuals in the group B) the size of the group C) the individuals' medical histories D) the type of and premium for coverage
the individuals' medical histories Explanation Group insurance is underwritten on the size and composition of the group, as well as the type of plan and amount of premium to be charged. Individual medical histories are not a factor in underwriting group insurance.
Under a group life plan, eligible dependents of an insured employee could include all of the following EXCEPT A) the insured's in-laws B) the insured's dependent parents C) the insured's brother, who lives with her D) the insured's spouse
the insured's in-laws Explanation To be eligible for coverage under a group life plan, the insured's in-laws would need to be financially dependent upon the insured./
A certificate holder will lose their coverage under a group life insurance plan due to any of the following EXCEPT A) the insurer does not renew the policy B) the employer discontinues the plan C) the certificate holder leaves the employer D) the insurer increases the premium
the insurer increases the premium Explanation A certificate holder and dependents will lose coverage if the insurer or employer does not renew the plan or if the certificate holder chooses to leave the employer. Premium increases are not a factor unless the certificate holder chooses not to continue coverage./
Individual certificates issued to all individuals insured under an insurance policy must include all of the following information EXCEPT A) the premium amount B) a conversion provision C) a statement of the insurance protection provided D) a statement of to whom benefits are payable
the premium amount Explanation Individual certificates for insureds in a group plan must state what coverage is provided and to whom it is payable, and they must include a detailed conversion provision.
