As we mentioned in the previous article, many corporations offer competitive packages, and that is even a strategy for hiring and retaining employees. These competitive packages include group insurance for plans that provide individual retirement accounts or traditional registered pension plans, etc. In this article, we will discuss the advantages and disadvantages of the contributory and non-contributory insurance plan in the group.
I. Contributory plan
Under this type of plan, employees contribute a portion of the group insurance premium.
1. Advantages of the contribution plan include
a) The premium contributed by employees increases over all premiums, resulting in a more comprehensive group insurance plan.
b) employees have the option to choose better group plans
c) Eliminate some excessive claims, which generates high experience rates causing an increase in the premium when the group plan is renewed.
d) In Canada, if employees pay health care premiums and the premium exceeds 3% of their taxable income for the year, 17% of the amount that exceeds 3% will be returned as a tax credit.
2. Disadvantage
Employees must pay a portion of their share of the premium out of taxable income.
II. Non-contributory plan
Under this type of plan, no employee contributions are required, all group insurance premiums are paid by the employer.
1. Advantages
a) Employees do not contribute to the cost of the plan, therefore, employees with lower salaries can participate in the same level of care as employees with higher salaries.
b) Most employer-paid group insurance has lower administration costs and is easy to install and maintain.
c) Premiums are tax deductible for the employer and only life insurance premiums are a taxable benefit to the employee.
d) All employees are automatically covered.
2. Disadvantages
a) The plan is generally not as complete as the contributory plan
b) Benefits received as payments under the group short-term and long-term disability plan are taxable for the employee.
c) The premium paid on behalf of the employees can be added to the tax base.
I hope this information is helpful. If you need more information, you can read the full series of the previous topic on my home page:
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