LLQP Life Insurance · Component 2.1 · 30% of the exam
A contributory group life plan requires a minimum participation rate because:
- If only the members most likely to claim enrol, the group's experience worsens; a minimum keeps the pool representative
- BIt lowers the commission the insurer must pay, since a larger enrolment spreads the agent's compensation over more members
- CEmployers prefer it, since a plan that most employees join is easier to administer through payroll
- DRegulators require it under the provincial Insurance Act as a condition of registering a group plan
Correct answer: A) If only the members most likely to claim enrol, the group's experience worsens; a minimum keeps the pool representative
Anti-selection is the enemy of group pricing. Requiring, say, three-quarters of eligible members to join a contributory plan ensures the group's mortality resembles the population the insurer priced.
Why the other options are wrong
- BCommission is unrelated.
- CThe rule exists for the insurer's risk management, not employer preference.
- DParticipation minimums are insurer underwriting rules, not regulation.
Exam tip
Contributory plans need minimum participation to control anti-selection; non-contributory plans usually require everyone.
Common mistake
Thinking a small, self-selected subset of employees can form a group plan.
What this tests
CISRO competency component 2.1 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Life Insurance module. Written against the published curriculum.
More from component 2
- A client has a need lasting about twenty years and compares a ten-year and a twenty-year term policy. The main point to explain is that:
- A client exercises the conversion privilege on his term policy. The permanent premium will be based on:
- A client notices that a small policy costs proportionately more per unit of coverage than a larger one. The explanation is that:
- A client wants to pay monthly rather than annually. The agent should explain that monthly payment:
- A client asks why dividends from her participating policy are not taxed like interest from a bank. The reason is that a dividend is:
- A universal life policyholder is choosing among the investment options inside her policy. She should understand that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.