Home | News | Group Benefits | The Optional Benefit Coverage Dilemma

All benefit plans have optional products that insurance companies make available for employees. While not aggressively sold, these products can provide a convenient, but at times expensive, way to supplement an employee’s coverage.

All ASSOCIUM plans and most other plans as well, come with optional insurance products that are available. These products include optional life insurance, optional dependent life insurance, optional employee and/or dependent Accidental Death and Dismemberment (AD&D), optional critical illness, and more.

The advantage for employees is that they can purchase additional coverage for themselves, their spouse and (depending upon the insurance carrier) their families, particularly if their benefits coverage does not fulfil their personal needs. Once purchased, the premiums can be paid by the employer and deducted from the employee’s pay. Employers may also use the additional coverage for specific employees, such as senior executives, as a type of ‘benefits top-up’.

Optional plans allow employees, spouses and (if available) dependents, to purchase the various insurance products in the volumes they need rather than only what is offered by the benefit plan. While a plan might offer a Life benefit of 1 x salary or a flat $25,000, the optional product can offer $300,000 to $500,000 or more, depending upon the insurer. Traditionally, dependents are limited to the benefit plan offering ranging from $5,000 to $20,000 for a spouse and $2,500 to $10,000 for a dependent child.

The AD&D products are often more flexible and comprehensive than the typical plan offering. Again, the insured volumes are greater and the product is available to family members.

Many carriers also offer Optional Critical Illness (CI). CI is a benefit that pays a pre-determined amount in the event that an individual is diagnosed with one of a range of covered illnesses. Most plans cover from 18 to 24 illnesses such as cancer, heart disease, liver disease etc. Insured amounts range from $5,000 to over $100,000, and rates are similar to life insurance based on age, gender etc. Once again, the optional product offers greater coverage than what the benefit plan offering might be.

The optional products are normally medically underwritten from first dollar and rates are determined by age, sex and whether the applicant is a smoker/non-smoker. Once approved, the products are available until the employee is no longer eligible for the benefit plan. An employee could become ineligible if they leave the employer or if they reach the maximum age for coverage on the benefits plan. As well, their Life or AD&D benefit could reduce at age 65 and terminate once they reach age 70 even if they are still an employee.

An employee leaving their employer and, therefore, having to terminate their benefits, can convert their coverage within 31 days of termination. That is, they can transfer their coverage with the carrier away from their employer to an individual plan of the same insured volume, typically without having to provide medical evidence of insurability. Carriers will often limit the volume that is convertible. Furthermore, the carrier will re-price the coverage depending upon the product. For example, a Term Life policy could be converted to a Whole Life plan of the same value but the rate would be increased.

Being able to initiate the optional policies through the employer and enjoy the convenience of paying via payroll deduction can be attractive to an employee. But this convenience can be offset by the cost of optional products. Optional policies are similar to term policies; however they function like group policies. That is, the rates increase as the employee ages. In contrast, standard individual term policies are sold with rates that are fixed for the term of the plan.

Another issue is that the policies are only in force while the employee remains employed with the same employer. While conversion options are available, they can be limited and costly.

Finally, there is the issue of flexibility. The plan offerings tend to be very limited in contrast with the insurance products available in the broader market. They are limited by what optional products are offered with the employer’s plan, as well as the product selection of the particular carrier. Therefore, many employees seek their additional coverage from the broader Life insurance market following the advice of a licensed broker. This opens up many more possibilities of finding the right product and can be less expensive than the optional product. Though the employee loses the convenience of payroll deduction, the inconvenience of the coverage ending if the employee leaves the employer or attains the age of mandatory termination of benefits on their employer’s plan is no longer an issue.

ASSOCIUM generally advises employees based on their specific needs and will fully explain the options. Some employees will opt for an optional product while others may decide to seek the advice of a life agent. We can recommend an agent, as well.

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ASSOCIUM Benefits is a very unique employee group benefits provider, focused on supporting benefits advisors and their employer clients. We provide Brokers and Plan Sponsors with a range of solutions from traditional group benefits to more customized, cost and tax effective employee compensation. Let’s connect to find out how we can help.

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