CMFAS M9 Underwriting, Servicing & Claims question: contributory Group Life scheme

CMFAS M9Underwriting, Servicing & Claims

In underwriting a contributory Group Life scheme, why does the underwriter usually specify a minimum participation level (e.g. 70%–90% of eligible members)?

A To increase the commission payable to the group's broker on each member
B To guard against anti-selection and spread risk and costs across expected mortality
C Because the law fixes participation at exactly 90% of eligible members
D To ensure every member undergoes a full medical examination before joining

Show the answer and explanation

Answer: B. To guard against anti-selection and spread risk and costs across expected mortality

In a contributory plan participation is voluntary, so the underwriter sets a minimum participation level (e.g. 70%–90% of eligible members) to guard against anti-selection and to spread risk and administrative costs across the expected mortality range.

Common mistake

The percentage is an underwriting safeguard against anti-selection, not a statutory fixed figure.

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CMFAS M9 Underwriting, Servicing & Claims question: contributory Group Life scheme

Answer: B. To guard against anti-selection and spread risk and costs across expected mortality

Common mistake

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CMFAS M9 Underwriting, Servicing & Claims question: contributory Group Life scheme

Answer: B. To guard against anti-selection and spread risk and costs across expected mortality

Common mistake

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