Tennessee Insurance Practice Exam

If its employees share in the cost of insurance, what type of group life insurance plan would a corporation have?

1. Noncontributory plan

2. Contributory plan

3. Universal plan

4. Mandatory group plan

The correct answer is: Contributory plan

A corporation would have a contributory plan if its employees share in the cost of insurance. In this type of group life insurance plan, both the employer and the employees contribute to the premiums. This allows for more significant coverage options, as employees are more likely to participate in a plan where they share the cost, leading to a larger risk pool and potentially lower costs for everyone involved. The fact that the employees contribute indicates active participation in the insurance plan, which often leads to tax advantages for employees under certain conditions, while also ensuring they have a stake in the coverage provided. The contributory approach fosters a sense of ownership and collective responsibility among employees, encouraging them to engage more thoroughly with their insurance benefits. In contrast, a noncontributory plan would imply that the employer pays the entire premium, meaning employees do not directly contribute. Universal plan refers to a type of individual life insurance policy and is not specific to group insurance. A mandatory group plan suggests that participation is compulsory, which does not capture the shared cost aspect involved in a contributory plan.