Group Life Contributory vs. Noncontributory Practice Questions

These original cases focus on the premium-sharing distinction in group life insurance. The employer or other group policyholder owns the master contract; covered members receive certificates. “Contributory” means insured participants pay part of the premium, not necessarily that every employee has identical deductions. “Noncontributory” means the policyholder pays the full premium. Eligibility classes and participation rules still matter. Texas law has specific group-life requirements, including participation provisions for some contributory arrangements; apply the stated statutory category and policy terms rather than treating one percentage as universal.

Question 1: Who pays

Question 2: Entire premium paid by employer

Question 3: Participation threshold facts

Question 4: Eligibility class

Question 5: Employer contribution changes

Question 6: Basic benefit formula

Question 7: Payroll deduction is not the death benefit

Question 8: Leaving employment

Question 9: Contribution and taxation

Question 10: Master contract vs certificate

Participation and eligibility

Do not confuse an enrollment percentage with eligibility. A class might be eligible but fail a required participation test, or a group might satisfy participation while a particular worker is outside the eligible class. For contributory cases, identify who pays, who must elect, and which class is counted. The TDI checklist is a useful Texas study aid, but it summarizes provisions for particular statutory forms; verify exact applicability before advising an employer.

Conversion and portability

Leaving employment, retiring, losing eligibility, or ending a group plan can trigger different continuation rights. The relevant notice may give a short election period and a premium that differs from payroll deductions. A conversion privilege may allow individual coverage without new evidence of insurability, but the available product and time limit are contract- and law-specific. Do not promise the group benefit follows the person unchanged. Get the master contract and certificate and tell the member to act promptly.

Tax treatment is separate

Federal group-term taxation depends on coverage amount, employee contribution, ownership, and plan facts. IRS Publication 15-B provides employer reporting guidance, including rules for coverage above $50,000 in applicable employer arrangements. That tax threshold does not define contributory status or set the Texas policy’s face amount. Keep insurance-law classification, payroll deductions, imputed income, and death-benefit taxation separate.

Count the correct participation group

A participation percentage is meaningful only after you identify the eligible group and statutory form. If a rule applies to a group with 100 eligible employees and 75 must elect coverage, the numerator is the 75 valid elections and the denominator is 100 eligible employees. Do not include people outside the class or count dependents as employee participants unless the applicable rule says so. The TDI LAC005 checklist summarizes the requirement for specified group term policies, but it is not a universal plan-design rule. Exam stems may identify a precise Chapter 1131 category; match that category before calculating a percentage.

Analyze the employee contribution accurately

An employer may fund a flat share, pay different amounts by class, or require employees to pay the full incremental premium for optional coverage. Any employee premium contribution can make coverage contributory for the relevant arrangement, but the participation calculation may concern only eligible persons required to elect. Distinguish the basic plan from voluntary supplemental coverage. For example, an employer-paid $50,000 basic benefit can be noncontributory while an employee-paid supplemental $100,000 layer is contributory. Describe each layer separately rather than assigning one label to every benefit offered through payroll.

Follow a termination decision tree

When employment ends, confirm the last day actively at work, the coverage termination date, the certificate’s conversion or portability clause, the application deadline, and the required first premium. A continuation right can preserve individual coverage without new evidence of insurability, but it may require a timely written election and a different premium. Some plans instead offer portability under a group contract. The owner should not assume payroll deductions after departure will keep coverage in force. The exam answer should identify a right if the facts state it, but avoid inventing a universal conversion period or benefit amount when the stem does not provide one.

Keep federal imputed income separate from state classification

Employer-paid group term life has federal tax consequences separate from whether a plan is contributory. IRS Publication 15-B describes the general exclusion for the first $50,000 of employer-provided group-term coverage and the imputed cost rules that may apply above that amount. Employee after-tax contributions and the plan’s design can affect calculations. A 75% participation threshold under a Texas group insurance provision is not a federal tax threshold. In an exam, first answer who pays the insurance premium; if the question then asks taxation, move to the applicable IRS method and data rather than assuming the state insurance label resolves it.

Use the certificate for an individual claim

A master policy describes the group arrangement, while a certificate summarizes an employee’s coverage. If payroll shows deductions but a certificate lists no coverage, reconcile enrollment, effective date, evidence requirements, and the insurer’s records. A missed open enrollment election or late application may change whether coverage took effect. Do not infer that an employee’s contribution alone establishes the exact amount or beneficiary. Likewise, an employer’s contribution does not prove a specific employee is eligible. Keep the person’s insured status, benefit schedule, beneficiary designation, and payment history as separate evidence questions.

A practical enrollment audit

When reviewing a plan, reconcile the eligible employee roster with elections, waiver forms, payroll deductions, and coverage effective dates. If 82 of 100 eligible employees elect a contributory benefit, the participation rate is 82% for that stated group. Confirm whether the other 18 waived coverage, were not eligible, or had pending evidence requirements; those categories may be treated differently under the contract or applicable rule. Do not count a worker twice because the person elected basic and supplemental coverage. A clean audit helps the employer find missed deductions and helps the insurer determine whether the master policy’s participation and eligibility requirements were met.