What is Group Insurance and Why Should You Provide it?
What is Group Insurance?
Group insurance provides a mechanism for employers to provide employee benefits as part of an employee’s total compensation package, as part of one group, outside of government-provided benefit programs. Group insurance benefits commonly provided in the Canadian marketplace include:
- Basic Life Insurance
- Optional Life Insurance
- Supplemental Life Insurance
- Basic Dependant Life Insurance
- Optional Dependant Life Insurance
- Survivor Income Benefits
- Paid-Up Life Insurance
- Critical Illness Insurance
- Accidental Death and Dismemberment Insurance
- Short Term Disability Insurance
- Weekly Indemnity Insurance
- Sick Pay Programs
- Salary Continuance
- Long Term Disability Insurance
- Health Insurance
- Dental Insurance
Reasons for Providing a Group Insurance Plan
There are many reasons that an employer may wish to provide employee benefits through a group insurance plan for their employees including:
Advantages for Employees
- Demonstrating concern for the welfare of the employee and their family
- Reduce or eliminate the need for an employee to use after-tax income to purchase individual insurance products for protection
- No need for the employee to provide evidence of good health
- Group insurance is typically less expensive than individual insurance because the risk of loss is pooled among the entire group
Advantages for Employers
- Costs paid into a group insurance program are considered a tax deductible business expense
- Attracting and retaining talent
- Providing employee benefits for employees generally leads to a healthier workforce because employees have access to medical services when they need it usually at a lower out of pocket cost (depending on plan design)
- Employee benefits can be provided in exchange for some element of cash compensation
Group Insurance Conditions
For a group insurance plan to exist there needs to be an element of risk for a potential loss that can be measured and predictable. To arrange a group insurance policy the following key ingredients must be in place:
- Employees covered under the group insurance policy must be actively at work and working a minimum amount of hours per week to be eligible (usually 20 or 24 hours)
- The amount of coverage and choices available must be restricted in some way
- Where employee contributions are required towards the costs of the group insurance plan, they must be deducted from the employee’s pay
- The employer must pay a portion of the costs towards the group insurance program
- The associated risk of loss must be spread among the group of employees covered
Elements of Group Insurance Policy
A group insurance policy is a legal contract between an employer or plan sponsor and an insurance company. The group insurance policy will outline the terms of the agreement between the two parties with details surrounding:
- When coverage begins and ends
- Who is eligible for coverage
- Underwriting requirements under the program
- How premiums are to be calculated
- How the insurance company will administer the plan including setting up the policy, paying claims, invoicing for the premium due, etc.
If you are interest in starting a group insurance plan and need help understanding the process, considerations and options available, please contact us.
Category: Group Benefits
