June/July 2004: by Dale Berg

Upgrading the benefits package for the employer

Employee benefit programs are traditionally designed to cover some basic needs for coverage. But what happens if there is a major expense, or major cost to be covered? What happens if your son needs speech therapy at $250 per month, and the extended health benefit is capped at $500 per year? Or what happens if a loved one needs significant home renovations because of severe and prolonged mobility impairment? Or, one may need special medical care that could cost $10,000 for the procedure.

Or what happens if you, the owner of the company, become disabled and you have to rely on the very restrictive definition of disability of the group plan to provide you with disability benefits?

As a business owner, your needs may not be the same as your employees. A standard group insurance policy designed to cover the basics is not in your best interest. So what do you do? Do you not become a part of the group? Do you look after all your needs with personal coverage?

The answer is, you take from the group what is cost efficient, and you supplement the employee benefit package with a cost-plus arrangement and a disability carve-out program.

The first supplement is the cost-plus arrangement with your group benefits provider. Most insurance companies will allow these arrangements to be integrated into the health and dental programs. You need to check with your carrier to make sure they have the capability to run such a program. The concept is simple. You incur a large medical or dental expense that your group insurance won't cover. If you pay for that expense from your annual income, you need to pay tax, then pay the expense with after-tax dollars.

Therefore you need to earn about $1.75 to pay $1 of expenses. If the expense, however, qualifies as a medical or dental expense under CRA guidelines, we can then run that expense through as a cost-plus arrangement. Here is how it works:

• Your company pays a premium equal to the expense incurred, on a tax-free basis to the insurance company, plus 10 per cent administration fee.
• The insurance company then pays you a tax-free benefit equal to the expense incurred.

When it's all said and done, you are still much better off because your company basically writes off the medical expense you incurred with no tax consequence to you as the owner of the company.

The next enhancement that is a must, is disability carve-out. As an owner of the company,what areas and duties within that company are you unable to perform? Are you able to do the billing? Are you able to sell the product? Are you able to meet the customers by phone or in person? Are you able to drive the delivery truck? The answer is usually an overwhelming YES, I own this business, and I can do all of that.

The definition of a group contract after two years of disability usually reads like this: An employee is deemed to be disabled if he/she is unable to perform any of the regular duties of any occupation for any employer for which he/she is reasonably fitted, or could so become by education, training or experience. Under the group definition of disability, the employer must be severely disabled to continue to collect benefits. In many instances employers will be forced to go back to work substantially hindering their healing process, and in many instances being forced back too soon which could affect their company's productivity, and the overall morale of the employees, and definitely of the employer.

The definition the employer should have is: An insured is considered disabled if he/she is unable to perform the important duties of his/her own occupation. And this is the definition the employer would receive from a personally owned disability contract. The process of carving you, the employer, out of the group insurance policy is simple. Create another division in your group contract where you are the only member, and eliminate the disability portion of the benefits for that subdivision. You are then open to insure yourself personally and acquire a personal disability policy with the correct amount of monthly benefit and with superior definitions that cover you appropriately.

If a disability occurs, you will get paid if you cannot perform your important duties. As the owner, your absence will more than likely reduce profits, especially in smaller owner/operator businesses. The comfort this definition of disability will give you is the ability to take time to heal properly and have your personal living expenses paid during that time period. Proper coverage is all about cost, flexibility and choice. By upgrading your employee benefits package in this manner, you have accomplished those objectives.

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About the author
Dale Berg, CLU, Ch.F.C., CFP, is a Senior Financial Advisor with Assante Financial Management Ltd. He can be reached at 1-877-837-3377 or 306-665-3377, or click to email Dale Berg.

Disclaimer
Please contact a professional advisor to discuss your particular circumstances prior to acting on the information above. The opinions expressed are those of the author and not necessarily those of Assante Financial Management Ltd.

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