CLU Group Benefits and Employee Insurance 1 — Questions and Answers
Question 1: Under a contributory group life insurance plan, what is the minimum employee participation requirement typically required by insurers?
- 50%
- 75% (Correct answer)
- 90%
- 100%
Correct answer: 75%
Most insurers require at least 75% of eligible employees to participate in a contributory group life insurance plan to prevent adverse selection.
Question 2: Which provision in a group life insurance policy allows employees to convert their coverage to an individual policy without evidence of insurability when they leave employment?
- Waiver of premium provision
- Conversion privilege (Correct answer)
- Portability provision
- Continuation option
Correct answer: Conversion privilege
The conversion privilege allows a departing employee to convert group coverage to an individual permanent policy within 31 days without proving insurability.
Question 3: A Section 79 plan governs the tax treatment of employer-provided group term life insurance. What is the monthly cost per $1,000 of coverage above $50,000 taxable to the employee?
- Actual premium cost
- IRS Table I rates (Correct answer)
- Employer's blended rate
- COBRA rates
Correct answer: IRS Table I rates
IRC Section 79 requires employees to include the cost of group term life coverage exceeding $50,000 in gross income, calculated using IRS Table I uniform premium rates.
Question 4: What is the primary purpose of a Multiple Employer Welfare Arrangement (MEWA)?
- To provide individual life insurance policies to union members
- To allow small employers to pool together to purchase employee benefits (Correct answer)
- To reinsure large group life insurance contracts
- To administer COBRA continuation coverage
Correct answer: To allow small employers to pool together to purchase employee benefits
MEWAs enable small employers to join together as a purchasing pool to obtain group benefits at rates comparable to larger employers.
Question 5: Under ERISA, what is the primary fiduciary duty of a plan administrator for a group life insurance plan?
- Maximize employer tax deductions
- Act solely in the interest of plan participants and beneficiaries (Correct answer)
- Minimize premium costs regardless of coverage
- Follow employer directives at all times
Correct answer: Act solely in the interest of plan participants and beneficiaries
ERISA requires plan fiduciaries to act solely in the interest of plan participants and beneficiaries with the exclusive purpose of providing benefits.
Question 6: Which type of group life insurance provides coverage that remains level throughout the insured's working life and does not increase with salary?
- Flat benefit plan (Correct answer)
- Earnings-based schedule
- Position-based schedule
- Unit benefit formula plan
Correct answer: Flat benefit plan
A flat benefit plan provides the same fixed dollar amount of life insurance to all eligible employees regardless of salary or position.
CLU Group Benefits and Employee Insurance 1
Under a contributory group life insurance plan, what is the minimum employee participation requirement typically required by insurers?