The pros and cons of insurance at work

The group benefits your employer provides are a great start but not sufficient. So also look into individual insurance.

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From the April 2014 issue of the magazine.

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When a hockey puck chipped Brennen Peever’s front tooth he was grateful for the timing. Two weeks earlier, he would have had to pay for a dentist himself.

Fortunately, Peever had just become a full-time employee with a large commercial lender that provides its staff with a comprehensive benefits package, including medical and dental, life and disability insurance.

It’s smart business to keep employees healthy, presentable and loyal. And both the tax system and insurers encourage group medical and dental coverage in particular.

Employer-sponsored medical benefits are often better than individual insurance policies and have fewer health qual­ification questions, says group benefits specialist David Patriarche of Mainstay Insurance Brokerage Inc. in Toronto.

However, company-sponsored death and disability benefits are not always enough on their own. Coverage could suddenly be reduced, so it’s wise to shop around and formulate a back-up plan.

Peever’s medical and dental plan paid 80% of his recent dental work, and by coordinating benefits, his female companion’s plan paid the remaining 20%.

Early this year, Peever opted out of his newly acquired group medical and dental coverage. He kept only the life and disability coverage. The couple reasoned that paying 20% of medical expenses submitted to her plan, which also provided 20% coverage, would not cost as much as the $1,050-a-year boost in gross pay that Peever received after dropping coverage.

But before having children or changing jobs, the couple would be wise to confirm their health status and consider supplementing or replacing their life and disability coverage.

Employer-sponsored medical plans have a pricing advantage because of tax treatment. Everywhere but Quebec, employers can deduct the cost of providing coverage, and employees pay no tax on benefits.

That may be why 21.2 million Canadian workers and their dependants were covered by at least one health-care benefit plan through employers, professional associations or other groups at the end of 2012, according to the Canadian Life and Health Insurance Association. About 19 million of those also had dental benefits but only 1.7 million were protected by individual or family medical insurance plans and 250,000 by dental plans.

Online rates reveal the most complete medical and dental plan from Green Shield Canada ranges from $1,800 a year for singles under 45 to $2,340 for those over 65. Depending on age, family rates range from $4,440 to $5,460 in Ontario, where insurers’ costs and premium rates are highest.

Single workers and couples who buy their own medical coverage may claim only a modest medical tax credit (20% in Ontario) on a portion of insurance premiums and medical costs. It kicks in only after they pay $2,152 in a 12-month period of their choice or 3% of one spouse’s net income.

One downside of employer-sponsored life insurance plans is that they have level premiums; that is, employees are charged the same rates, regardless of age or differences in lifestyle. So, for example, young athletic women would pay the same premiums as older sedentary male smokers.

Death benefits available from employer-sponsored plans are no more than one, two or––for managers––three times annual salary. Some pay less, so may be inadequate for families with dependent spouses and children.

Worse, employers have the right to change or negotiate reductions in life, disability or other benefits. You may be able to convert coverage to an individual plan, but it may be hard to buy more coverage if your health deteriorates.

Individual disability insurance plans appeal more to those with desirable, high-paying jobs. Employers’ plans typically pay only a percentage of pre-disability earnings for two years. Then you’re expected to find a job commensurate with your education, experience and training, despite new physical or mental limitations.

Certified financial planner Cecilia Tsang has related a sad story about her father being diagnosed with cancer just as his group life and disability coverage was being reduced to a fraction of what he had expected.

Tsang, of Rogers Group Financial Advisors Ltd., may not have a full understanding of her father’s benefits or legal rights. Regardless, her parents ended up depleting their retirement savings before they reached the age of 60. “It was a drastic setback for him and my mother,” she added.

So learn your rights and obligations with any group benefits or individual insurance you acquire. Like Brennen Peever, you should be grateful if an employer offers a comprehensive package of benefits.

Then you can seek advice on whether you should give up, replace or supplement your employer coverage with your own individual insurance policies.

James Daw is a journalist and Certified Financial Planner in Toronto. Email jamesdaw@sympatico.ca; on Twitter he’s @jamesfdaw.

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