LLQP - Life License Qualification Program Group Benefits Plan Concepts Questions and Answers 1 — Questions and Answers
Question 1: A mid-sized company offers a group benefits plan where it pays the entire premium for all eligible employees. The insurer mandates that 100% of eligible employees must be enrolled. What is this type of plan called?
- A cafeteria plan
- A contributory plan
- An administrative services only (ASO) plan
- A non-contributory plan (Correct answer)
Correct answer: A non-contributory plan
A non-contributory plan is one where the employer pays the full premium. To prevent adverse selection (where only those who expect to claim will join), insurers typically require 100% participation from all eligible employees.
Question 2: An employee is covered under a group long-term disability (LTD) plan where the employer pays 100% of the premiums. If the employee becomes disabled and starts receiving monthly benefits, what is the tax treatment of these benefits?
- The benefits are received completely tax-free.
- The benefits are considered taxable income to the employee. (Correct answer)
- Only 50% of the benefits are taxable.
- The benefits are taxable only if the employee also receives CPP disability benefits.
Correct answer: The benefits are considered taxable income to the employee.
In Canada, when an employer pays all or part of the premiums for a group disability plan, any benefits received by the employee are considered taxable income. If the employee had paid 100% of the premiums with after-tax dollars, the benefits would have been non-taxable.
Question 3: Mei and her husband, Liam, are both covered under their respective employers' group health plans, and they have also covered their dependent child on both plans. Mei's birthday is March 15th, and Liam's is August 2nd. If their child requires a medical service, how will the claim be paid under standard coordination of benefits (COB) rules?
- Liam's plan pays first because he is the father.
- They can choose which plan to submit the claim to first.
- Mei's plan pays first because her birthday occurs earlier in the calendar year. (Correct answer)
- Both plans will pay 50% of the eligible expense.
Correct answer: Mei's plan pays first because her birthday occurs earlier in the calendar year.
Under the Canadian Life and Health Insurance Association (CLHIA) guidelines for coordination of benefits, the "birthday rule" is used for dependent children. The plan of the parent whose birthday (month and day) comes first in the calendar year is the primary payer. Since Mei's birthday is in March and Liam's is in August, Mei's plan pays first.
Question 4: An employee who is covered by $200,000 of group life insurance resigns from their job. Which of the following statements best describes the 'conversion privilege' available to this employee?
- The employee can continue the group coverage for up to 18 months by paying the premiums.
- The employee can convert the group coverage to an individual term policy but must provide medical evidence of insurability.
- The employee has the right to convert to an individual permanent life insurance policy, within a specified time limit and without providing evidence of insurability.
- The employee is entitled to receive the cash surrender value of their group coverage. (Correct answer)
Correct answer: The employee is entitled to receive the cash surrender value of their group coverage.
The conversion privilege allows an employee whose group life coverage terminates (e.g., due to leaving their job) to convert that coverage into an individual permanent life insurance policy without having to provide evidence of insurability. This must typically be done within 31 days of the termination of group coverage.
Question 5: A large corporation decides to self-fund its employees' health and dental claims but hires an insurance company to handle claims processing and administration. The corporation assumes the financial risk for the claims paid. What is this type of arrangement called?
- A fully insured plan
- An Administrative Services Only (ASO) plan (Correct answer)
- A Health Care Spending Account (HCSA)
- A non-contributory plan
Correct answer: An Administrative Services Only (ASO) plan
In an Administrative Services Only (ASO) arrangement, the employer self-funds the claims and assumes the financial risk, while contracting with a third party (often an insurer) to provide administrative functions like claims adjudication. This is in contrast to a fully insured plan, where the insurer assumes the risk in exchange for a premium.
Question 6: What is the primary purpose of a probationary period in a group benefits plan?
- To allow the insurer to medically underwrite each new employee.
- To provide a discount on premiums for the first few months of employment.
- To serve as a waiting period before a new employee becomes eligible for benefits, ensuring they are a continuing employee. (Correct answer)
- To require employees to pass a skills test before they can enroll in the benefits plan.
Correct answer: To serve as a waiting period before a new employee becomes eligible for benefits, ensuring they are a continuing employee.
The probationary period is a waiting period (e.g., 30, 60, or 90 days) after an employee is hired during which they are not yet eligible for group benefits. Its purpose is for the employer to assess the employee's suitability for the role and to manage the costs associated with benefits by offering them only to employees who are staying with the company.
LLQP - Life License Qualification Program Group Benefits Plan Concepts Questions and Answers 1
A mid-sized company offers a group benefits plan where it pays the entire premium for all eligible employees.
The insurer mandates that 100% of eligible employees must be enrolled.
What is this type of plan called?