Final answer:
A group life insurance plan fully paid for by the employer is known as a non-contributory plan. Charging an actuarially fair premium to the entire group rather than individually can lead to inaccuracies in risk assessment and potential losses for the insurance company. Defined contribution plans like 401(k)s are common and help protect retirees against inflation.
Step-by-step explanation:
A group life insurance plan in which the employer pays the entire premium is known as a non-contributory plan. This is in contrast with contributory plans where employees also pay a part of the premium. Non-contributory plans are often valued by employees as a company-paid benefit.
In a scenario where an insurance company is determining premiums, if the company tries to charge the actuarially fair premium to the group as a whole rather than to each individual group separately, this could result in less accurate risk assessment. For example, if the company doesn't account for family cancer histories, which are significant risk factors, this could lead to financial losses for the insurance company because the set premium may not adequately reflect the higher risk among certain individuals within the group. Consequently, the premiums charged might not cover the cost of claims.
Defined contribution plans, like 401(k)s and 403(b)s, are increasingly common and have largely replaced traditional defined benefit plans. These plans entail regular employee and employer contributions which are tax-deferred and invested, potentially giving retirees more protection against inflation.