GBA 2 EXAM WITH COMPLETE
SOLUTIONS (GRADED A+)
Benefit by Benefit Analysis allowed by ADEA - Answer-an ER may reduce the amount
of coverage for an older worker if the acutarial cost is not less than the cost of providing
more coverage to a youger worker. ER can reduce starting at age 65 by (1) 8 to 9% of
the declining balance each year or (2) a one-time reduction of between 35 to 40%. ER
may be able to reduce more based on its own demonstribly higher cost experience.
Benefit package approach allowed by ADEA - Answer-offers more flexibility than a
benefit by benefit approach as long as the cost is no less than the package offered to
younger groups, and the benefits are no less favorable in terms for older workers.
Advantages of Group term life for the EE - Answer-1. Low cost protection
2. Reduces anxiety
3. Favorable tax status up to $50,000
Note: if plan discriminates in favor or key EEs, then the entire benefit for those key EEs
is taxable
4. EE contributions automatically deducted from pay
5. Covertable w/o evidence of insurability
6. Those not insurable under an individual policy can get coverage
A group term policy my be discriminitory unless - Answer-1. The plan benefits at least
70% of all EEs
2. At least 85% of those covered are not key EEs
3. is part of a cafeteria style plan
4. complies with a reasonable classification system found by the IRS to be
nondiscriminatory.
Note: part-time, seasonal, and workers with less than three years LOS do not have to
be considered.
Disadvantages of group term - Answer-1. EE has no assurance the ER will continue the
policy
2. Changing jobs. Policies are not portable
3. Provides protection only. NO savings
4. % of pay plans are lowest when they may be the most needed
, Approaches for estimating the amount of life insurance to own. - Answer-1. Human life
approach
2. Needs approach
3. Capital retention approach
Yearly renewable term insurance versus level premium method. - Answer-Yearly
renewable are 1 year terms. Level premium method has 5, 10, 15, or 20 year terms.
Limitations of term life insurance. - Answer-(1) Premiums increase exponentially with
age (2) No savings value (3) Decreasing term poses many cons
Ordinary whole life insurance - Answer-aka: continuous premium whole life or straight
life -- is level premium policy that provides coverage to either age 100 or 121. It the
insured survives, the face amount is paid
Limited-payment whole life insurance. - Answer-Permenant lifetime coverage in which
the premiums are paid for in a shorter period such as 10, 20, 25, 30 years on in a single
premium or at age 65 or 70. VERY EXPENSIVE
Variations of whole life insurance - Answer-1. Variable live insurance
2. Universal life insurance
3. Variable universal life insurance
4. Current assumtion whole life insurance
5. Indeterminate-premium whole life insurance
Employee benefit-related death benefits - Answer-1. Group term
2. Goup paid-up
3. Group permanent
4. Group universal
5. Group survivor income
6. Group dependent life
7. Group AD&D
8. Group travel
9. Joint and survivor annuity benefits under retirement
10. Preretirement annuity benefits
11. Supplemental / optional life
Employee benefit plan considerations for group term life insurance. (5 items) - Answer-
1. An entire group is insured w/o medical examination
2. Premiums often based on an experience rating (prospective or retrospective)
3. Economies of administration
4. A master contract
5. Plan lasts longer than any lifetime
Group term life provisions - Answer-1. Beneficiary Designation
2. Settlement Options
SOLUTIONS (GRADED A+)
Benefit by Benefit Analysis allowed by ADEA - Answer-an ER may reduce the amount
of coverage for an older worker if the acutarial cost is not less than the cost of providing
more coverage to a youger worker. ER can reduce starting at age 65 by (1) 8 to 9% of
the declining balance each year or (2) a one-time reduction of between 35 to 40%. ER
may be able to reduce more based on its own demonstribly higher cost experience.
Benefit package approach allowed by ADEA - Answer-offers more flexibility than a
benefit by benefit approach as long as the cost is no less than the package offered to
younger groups, and the benefits are no less favorable in terms for older workers.
Advantages of Group term life for the EE - Answer-1. Low cost protection
2. Reduces anxiety
3. Favorable tax status up to $50,000
Note: if plan discriminates in favor or key EEs, then the entire benefit for those key EEs
is taxable
4. EE contributions automatically deducted from pay
5. Covertable w/o evidence of insurability
6. Those not insurable under an individual policy can get coverage
A group term policy my be discriminitory unless - Answer-1. The plan benefits at least
70% of all EEs
2. At least 85% of those covered are not key EEs
3. is part of a cafeteria style plan
4. complies with a reasonable classification system found by the IRS to be
nondiscriminatory.
Note: part-time, seasonal, and workers with less than three years LOS do not have to
be considered.
Disadvantages of group term - Answer-1. EE has no assurance the ER will continue the
policy
2. Changing jobs. Policies are not portable
3. Provides protection only. NO savings
4. % of pay plans are lowest when they may be the most needed
, Approaches for estimating the amount of life insurance to own. - Answer-1. Human life
approach
2. Needs approach
3. Capital retention approach
Yearly renewable term insurance versus level premium method. - Answer-Yearly
renewable are 1 year terms. Level premium method has 5, 10, 15, or 20 year terms.
Limitations of term life insurance. - Answer-(1) Premiums increase exponentially with
age (2) No savings value (3) Decreasing term poses many cons
Ordinary whole life insurance - Answer-aka: continuous premium whole life or straight
life -- is level premium policy that provides coverage to either age 100 or 121. It the
insured survives, the face amount is paid
Limited-payment whole life insurance. - Answer-Permenant lifetime coverage in which
the premiums are paid for in a shorter period such as 10, 20, 25, 30 years on in a single
premium or at age 65 or 70. VERY EXPENSIVE
Variations of whole life insurance - Answer-1. Variable live insurance
2. Universal life insurance
3. Variable universal life insurance
4. Current assumtion whole life insurance
5. Indeterminate-premium whole life insurance
Employee benefit-related death benefits - Answer-1. Group term
2. Goup paid-up
3. Group permanent
4. Group universal
5. Group survivor income
6. Group dependent life
7. Group AD&D
8. Group travel
9. Joint and survivor annuity benefits under retirement
10. Preretirement annuity benefits
11. Supplemental / optional life
Employee benefit plan considerations for group term life insurance. (5 items) - Answer-
1. An entire group is insured w/o medical examination
2. Premiums often based on an experience rating (prospective or retrospective)
3. Economies of administration
4. A master contract
5. Plan lasts longer than any lifetime
Group term life provisions - Answer-1. Beneficiary Designation
2. Settlement Options
