Montana State Life Insurance Practice Exam

What must happen if all premiums for a debtor group policy are paid by the debtors?

1. 75% of the eligible debtors must elect to pay the required charges

2. Every eligible debtor must be insured immediately

3. The policy must be cancelled

4. A specific fee must be collected

The correct answer is: 75% of the eligible debtors must elect to pay the required charges

When all premiums for a debtor group policy are paid by the debtors, it is essential that at least a majority of eligible debtors, specifically 75%, elect to pay the required charges. This requirement ensures that the insurance pool is adequately funded and that there is a substantial level of participation among the debtors, which is crucial for the sustainability and effectiveness of the group policy. This collective participation helps mitigate risk since the premiums contribute to a pooled fund that supports claims. If fewer than 75% of eligible debtors choose to participate, it could undermine the policy's viability, as there may not be enough premium contributions to cover the expected claims effectively. Thus, satisfying this threshold is a critical condition for the continuation of the policy.