Question 1

Under a group life insurance plan, the actual insurance contract is issued to the employer, while individual employees receive proof of their coverage. What is the document given to each covered employee called?

Accepted Answer

In group insurance, the master policy (contract) is issued to the employer or group sponsor, and each covered member receives a certificate of coverage summarizing their benefits and rights. The individual does not hold the actual policy.

Question 2

A key reason group life insurance can be issued efficiently is that eligible members generally do not have to prove they are healthy. Which underwriting feature reflects this?

Accepted Answer

Group underwriting evaluates the group as a whole rather than each individual, so eligible members who enroll during the initial enrollment period typically need no evidence of insurability. This is a core difference from individual insurance.

Question 3

Many group life plans require that an employee be performing their normal job duties on the date coverage takes effect. This eligibility condition is known as the:

Accepted Answer

The actively-at-work provision requires the employee to be actively performing job duties (not home sick or disabled) on the effective date for coverage to begin. It protects the insurer against adverse selection at enrollment.

Question 4

An employee covered under a group term life plan leaves the company. Which right generally allows this employee to obtain individual coverage without proving insurability?

Accepted Answer

The conversion privilege lets a terminating employee convert group coverage to an individual whole life (permanent) policy without evidence of insurability, provided they apply within the specified conversion window. The premium is based on the insured's attained age.

Question 5

When an employee converts group life coverage to an individual policy upon leaving employment, the premium for the new policy is typically based on which of the following?

Accepted Answer

Converted individual policies are priced at the insured's attained (current) age, so the premium is usually higher than the group rate. No evidence of insurability is required, which is the main benefit of conversion.

Question 6

An employer establishes a group life plan in which the employer pays the entire premium and no employee contributes. What participation level and plan type does this describe?

Accepted Answer

A noncontributory plan is fully funded by the employer, and because employees pay nothing, insurers require 100% of eligible members to be covered. This eliminates adverse selection since no one opts out.

Question 7

In a contributory group life plan where employees share in paying the premium, insurers commonly require what minimum level of eligible-member participation?

Accepted Answer

Contributory plans typically require at least 75% of eligible members to participate. Requiring a substantial majority helps prevent adverse selection, since employees who must pay may otherwise decline coverage.

Question 8

An employer provides an employee with $150,000 of employer-paid group term life insurance. How is this benefit treated for the employee's federal income tax?

Accepted Answer

Employer-paid group term life is tax-free to the employee only up to $50,000 of coverage. The cost of coverage exceeding $50,000 is added to the employee's taxable income as imputed income, though the death benefit itself remains income-tax-free to beneficiaries.

Question 9

Which statement best distinguishes a qualified retirement plan from a nonqualified plan for tax purposes?

Accepted Answer

Qualified plans meet IRS requirements, so contributions are typically tax-deductible and earnings grow tax-deferred until distribution. Nonqualified plans use after-tax dollars and lack these up-front deduction advantages, though they can favor select employees.

Question 10

A worker contributes to a Roth IRA. Which statement correctly describes its tax treatment?

Accepted Answer

Roth IRA contributions are made with after-tax dollars, so they are not deductible, but qualified distributions of both contributions and earnings are received income-tax-free. This contrasts with the traditional IRA, which offers up-front deductibility but taxes withdrawals.

Question 11

Owners of traditional IRAs and most employer qualified plans must begin taking a mandatory annual withdrawal after reaching a specified age. This withdrawal is known as the:

Accepted Answer

Required minimum distributions (RMDs) are the minimum amounts that must be withdrawn annually from traditional IRAs and most qualified plans once the owner reaches the required beginning age. They ensure tax-deferred funds are eventually taxed, and failing to take them triggers a penalty.

Question 12

A teacher at a public school and an employee of a nonprofit hospital both want a tax-deferred retirement plan designed specifically for their type of employer. Which plan is intended for employees of public education and 501(c)(3) nonprofit organizations?

Accepted Answer

The 403(b) plan, also called a tax-sheltered annuity (TSA), is available to employees of public schools and 501(c)(3) tax-exempt nonprofit organizations. It allows pre-tax salary deferrals that grow tax-deferred until distribution.

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