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Advantages and Disadvantages of Contributory and Non-Contributory Group Plans

As we mentioned in previous article, many corporations offer competitive packages, and that’s even a strategy in hiring and retaining employees. These competitive packages include group insurance to plans that provide individual retirement accounts or traditional registered pension plans, etc. In this article, we will discuss the advantage and disadvantage of contributory and non-contributory in group insurance plan.

I. Contributory Plan

Under this type of plan, employees contribute a portion of group insurance premium.

1. Advantages of contribution plan includes

a) Premium contributed by employees increasing over all premium resulting in more comprehensive group insurance plan.

b) the employees have their choices of choosing better group plans

c) Eliminate some excessive claims, which creates high experience ratios causing increase of premium when group plan come to be renewed.

d) In Canada, if the employees pay health care premiums and the premium exceeds 3% of their taxable income for the year, 17% of the amount in excess of the 3% will be returned as a tax credit.

2. Disadvantage

Employees must pay portion of their share of premium out taxable income.

II. Non contributory plan

Under this type of plan, no contributions are required of the employees, all group insurance premium are paid by employer.

1. Advantages

a) Employees do not contribute to the plan cost therefore, lower paid employees can participate in the same level of care as the more highly paid employees.

b) Most of employer paid all group insurance has lower administration costs and easy to install and maintain.

c) Premiums are tax deductible for the employer and only the life insurance premiums are a taxable benefit to the employee.

d) All employees are automatically covered.

2. Disadvantages

a) Plan usually not as comprehensive as contributory plan

b) Benefits received as payments under short term and long term disability group plan are taxable to the employee.

c) Premium paid on behalf of employees may be added to the taxable income.

I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:

Source by Kyle J Norton

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