Question 29

A group life insurance plan is contributory when the employee pays part of the premium.

A contributory group life insurance plan requires employees to contribute to the premium costs. This means that the financial responsibility is shared between the employer and the employees, with employees paying a portion of the premiums.

A) employee pays all of the premium.

This option is incorrect because if the employee pays all of the premium, the plan would be considered non-contributory. In a non-contributory plan, the employer covers the entire cost of the insurance without employee contributions.

B) employee pays part of the premium.

This is the correct answer as it accurately describes a contributory group life insurance plan. In this type of plan, employees are required to pay a portion of the premium, demonstrating shared responsibility for the insurance coverage.

C) service provider collects part of the premium.

While a service provider may collect premiums, this does not define whether the plan is contributory or non-contributory. The definition hinges on who pays for the premium, not who collects it. Therefore, this option does not accurately address the question.

D) third party administrator collects part of the premium.

Similar to option C, the role of a third-party administrator in collecting premiums does not determine if a plan is contributory. The critical factor is the payment responsibility, which is not clarified by this option. Hence, it is not relevant to the definition of a contributory plan.

Conclusion

The correct understanding of a contributory group life insurance plan lies in the shared premium payment between employees and employers. Option B clearly aligns with this definition, while the other options either misinterpret the concept or fail to address the payment structure essential to classifying the insurance plan.