Certified Financial Consultant (CFC) Practice Exam

What statement is INCORRECT concerning a noncontributory group plan?

1. The employees receive individual policies

2. All employees are included in the plan

3. Employers bear the cost of premiums

4. There are tax advantages for employers

The correct answer is: The employees receive individual policies

In a noncontributory group plan, the employer typically pays the entire premium, providing employees with coverage without requiring any contribution from them. This structure means that the employees do not receive individual policies; rather, they are covered under a single group policy that dictates the terms and conditions of coverage for all members of the group. This collective approach distinguishes noncontributory plans from contributory ones, where employees share in the premium costs and may have more flexibility in choosing individual policies. This understanding highlights why the statement regarding employees receiving individual policies is inaccurate, as it fundamentally misrepresents the nature of noncontributory group plans, which aim for uniform coverage across the group rather than individual variations.