Which of the following describes a contributory group insurance plan?
A) All of the premium is paid by the employer
B) Part of the premium is paid by the employee
C) Employees are eligible for policy dividends
D) Federal government contributes a portion of the employee’s premium
The Correct Answer and Explanation is:
The correct answer is B) Part of the premium is paid by the employee.
Explanation:
A contributory group insurance plan is a type of group insurance where both the employer and the employees share the responsibility of paying the insurance premiums. This means that part of the cost of the insurance is covered by the employer, while the employee is required to contribute a portion of the premium as well. Typically, the employer pays a larger portion of the premium, but the employee is still responsible for a smaller, specified share. This setup is common in many employer-sponsored health insurance plans.
In a contributory plan, the employee’s share of the premium is usually deducted directly from their paycheck, and the employer’s share is paid on the employee’s behalf. The primary advantage of contributory plans is that they offer employees a more affordable way to secure insurance coverage, as the employer’s contribution helps reduce the overall premium burden. These plans also allow employees to customize their coverage by contributing to the plan and selecting benefits that suit their individual needs.
On the other hand, a non-contributory group insurance plan is one where the employer pays the full premium, and employees do not contribute anything toward the cost.
Let’s also clarify the other options:
- A) All of the premium is paid by the employer: This refers to a non-contributory plan, where the employer covers the full cost of the insurance.
- C) Employees are eligible for policy dividends: Dividends are typically paid in participating insurance policies, but this is not necessarily a feature of contributory plans. The eligibility for dividends depends on the type of insurance policy, not whether it is contributory or non-contributory.
- D) Federal government contributes a portion of the employee’s premium: This statement would be true for certain government programs like Medicare, but it does not describe a contributory group insurance plan in a private employer setting.
Thus, a contributory plan involves a shared payment of the premium between the employer and employee, making B) Part of the premium is paid by the employee the correct answer.