Betterment Schemes for Physical Impairments
With the general medical betterment schemes taken care of, it is very important to have protective cover for physical impairments. Though it is to be kept in mind that there are many types of physical impairment schemes.
Physical impairment schemes which have shorter durations
There are many varieties of schemes, available to the management of smaller enterprises, from which they can choose a betterment scheme for their workers.
How to formulate your scheme :
It is very important to have complete knowledge of the various schemes which are under the purview of physical for shorter durations.
- These schemes typically deal with mishaps that make the person physically impaired for a short period of time, the time scheme can be availed after one to two weeks and extends to about 13 to 26 weeks.
- There is a technicality involved here. The smaller enterprises prefer the schemes which come into effect from at least 2 weeks, rather than the schemes which can be availed from the moment the requirement arises. This saves these smaller enterprises, almost 30% cost. These schemes of shorter durations cover impairment like the inability to perform normal duties because of childbirth, and it will get resolved quickly.
- For an enterprise which has 10 or more workers under this scheme enjoys many benefits. These are that there are no clauses where the person availing the scheme has to declare whether he or she has any prevailing medical problems. There is also no need for third party vetting for these claims.
- It this constant endeavour of the authorities to keep any workers under protection of betterment schemes that makes sure that the longer betterment schemes overlap the shorter ones, as the shorter schemes are typically from 13 to 26 weeks, the longer period schemes take over from the shorter ones, as they end.
- It is interesting to note that both the shorter period and the longer period schemes have more or less the same expenses. The mathematics of this is very simple, the shorter schemes are availed more often and the longer ones far and in between. However the longer ones have much bigger payouts.
- The shorter period schemes are ones in which, the enterprise contributes up to about sixty percentage of the basic remuneration of the worker towards the scheme.
- Sometimes with a higher premium the advantage can go up to almost seventy percentages. At the same time these schemes also comes with many riders, like maximum allowable claim per week.
- These schemes try to keep a level playing ground between moderately paid workers and highly paid workers. This is done by stopping Dollar benefits for highly paid workers after a certain period.
Betterment schemes sponsored by the state authorities
In many states of the United States of America, there are betterment schemes which are sponsored and governed by the state itself. Though these schemes are governed by the states themselves, it has been observed by the management of smaller enterprises, that these schemes are insufficient when it comes to cover the worker.
- The primary reason for this is that, these government sponsored schemes comes with the clause, where it makes it a level playing ground for both moderately and highly paid workers.
- To further understand the problem, most of these government sponsored schemes, were valid for up to maximum 26 weeks, so an enterprise who is availing this scheme, will have to migrate to the longer period scheme after only 26 weeks instead of, shorter 13 weeks. That meant that from week 13 to week 26 would be an extra burden.
This why smaller enterprises, which belong to the states which have these government sponsored schemes, should go for extra cover for their workers. The management of these enterprises, should compensate the cost for the gap between the government sponsored schemes and the actual practical requirement of any worker. In some cases like in New Jersey, the management contribution can be as low to 120 $ for 16 workers for a year, to upgrade the government sponsored schemes into a comprehensive betterment scheme.
Comparison between schemes with no waiting period with a waiting time of two weeks
As discussed earlier these short term physical impairment schemes have two options, one which begins from day one of the claim and the other one has a two week cooling off period.
- The scheme with a longer waiting time is as much as 30% cheaper for the enterprise taking the scheme for its workers. Now comes the question, who covers for the interim time, before the scheme comes into effect. Analysts say that it is better for the enterprise to foot the interim bill, than take a costlier scheme, which starts from day one.
- It is often noticed that, management of smaller enterprises do not have the knowledge that taking a scheme which starts from two weeks from the date of claim, is much cheaper than the one that starts from day one.
- Again another detail has to be kept in mind that if an enterprise has less than 10 workers, then in most cases that enterprise will not be entitled to a scheme which has a two week waiting time.
- Smaller enterprises generally cannot afford to have full time personnel to look after the welfare of its workers. This makes the job of the top management much harder, when it comes to choosing the scheme.
- This is the reason a small enterprise should choose its scheme very carefully and consider all aspects, because a wrong scheme can result in, one claim cost being equivalent to the premium paid for the whole year.
Time span of the scheme :
The best possible way to choose the short term impairment scheme is a mixture of both, a short term which is valid till 13 weeks and a long term program which starts from 90 days. There is a provision of increasing the cooling off period from 90 days to 180 days, and it also gives the enterprise a saving of 10% to 15%, but eventually this does not work out to be economical. Smaller enterprises, which have a cash constraint, will feel the pinch when they have to self-finance the period till the benefit starts to come in from the scheme. However the bigger enterprises may not have this problem. The dilemma of a smaller enterprise is, that the differential cost between a scheme which starts from 90 days and the one which starts from 180 days is minimal, but it also means the enterprise has to self-finance the interim period.
Challenges faced by smaller enterprises
Smaller enterprises, which essentially means enterprises which have less than 10 workers, have very limited options when it comes schemes for short and long term betterment, this is however not the case for enterprises which have more than 10 workers. The management of smaller enterprises should keep in mind that once the company crosses the limit of 10 workers, lots of options open up for the enterprise. These come with more variations and options for choosing from a variety of schemes. This gives the enterprise cost benefit as well as greater coverage for its workers.
Physical impairment schemes for longer durations :
There are schemes which deal with impairment of longer duration; the management of the smaller enterprises should be updated about these schemes. There are many clauses, which have to keep in mind while taking a particular scheme. Most importantly it has to be understood that these schemes are contract bound.
- There are some basic differences between enterprises which have less than 10 workers and those which have more than 10 workers. The betterment scheme for less than 10 workers is typically between $3000 to $ 6000.
- However once the enterprises takes the betterment scheme for more than 10 workers, the scheme offers up to, $ 10,000 or more.
- Again for enterprises which have a workforce of 50 or more, can avail benefits of up to $ 15,000 per month. This however is dependent on many factors, like the location of the enterprise, how much the company which is offering the scheme, has to deal with competition and other factors.
- The enterprises which are professional in nature like say a law firm can claim up to $ 20,000 as benefit per month. There are some methods which are followed by the insurance companies, like the betterment value of any enterprise, will typically be the average of the 3 highest paid persons of the enterprise.
- For longer duration physical impairment schemes, there are generally no mandatory physical tests, to ascertain whether the person has any ailment from before, but there are clauses which mention that if the person has any ailment from before taking the scheme, it will affect the claim.
- The insurance companies do this for a specific reason, they want to eliminate the risk, where a person takes the scheme, and is fully aware that he or she has already an existing health issue, which might be covered in the scheme.
- The companies providing the betterment schemes do not want to take the responsibility of already existing ailments, hence they give this clause for every new policy.
- The company which is providing the scheme has to look after its own commercial benefit also, hence it is very cautious about already present ailments.
- The management of smaller enterprises should very clearly make its workers understand this clause, this way there won’t be any misunderstanding between the management and the workers.
- However it is to be kept in mind that if there is a migration from one existing scheme to a new scheme, the clause of already existing ailment will not come into effect, as the company will take over the scheme in as is where is basis.
This is done to be fair to everyone involved, the insuring company, the management of the enterprise insuring the worker and the worker itself. This give a fair playing ground to everyone. The company does not have to bear cost of already existing ailments, on the other hand the enterprise does not have to stick with the same insurer forever.
Fine points featured in the contract :
At the time of taking a scheme for physical impairment for longer period of time, there are few things that are to be kept in mind; the meaning of complete impairment might be different from company to company.
- Complete physical impairment for a smaller enterprise is quite different from that of a larger enterprise. For a larger enterprise, the meaning of complete physical impairment is that the person is not in a position to perform his or her desired performance for the enterprise.
- This impairment period is calculated from 24 to 36 months at the most. After the stipulated period of time, the scheme becomes more and stricter towards the definition of complete physical impairment.
- This is the time when the insurer lays down terms and conditions on, how to define complete physical impairment. The definition of ‘Not being to perform duty’ becomes very important.
- Then the insurer wants to find out whether the person is not in a position to perform the specific duty assigned to him or her, or the person is no position to carry out any duty, because of the impairment. This is a very intriguing issue, the debate is between whether the worker insured by the enterprise for a specific job, is capable of doing other jobs, even after his or her physical impairment.
- It is very important for the management of smaller enterprises, to assess the kind of work the workers are doing. If the work involves less risk of physical injury, like a desk job for almost all its workers, then it would be prudent for the enterprise to opt for ‘Own Occupation’ scheme for total physical impairment for the whole working years, which typically is 65 years, but in some cases the upper limit may be raised to 67, for persons born after 1960, under the ‘Normal retirement age’ scheme of the government.
- When the management of a particular smaller enterprise, opts for this scheme, it actually gets more benefits than the extra money it spends. The benefits far exceed the extra money spent, and also develop tremendous worker welfare. However this extra effort on the part of the management needs to be communicated to its workforce.
- It is very important for the management of smaller enterprises to be completely updated about the various schemes available in the market.
- A small enterprise, which employs workers with minimal or no exposure to any work related physical hurt, typically a desk worker and workers who are exposed to work related physical hurt like a factory worker. Should consider taking two different kinds of physical impairment schemes.
- This can be done based on the work a certain worker is engaged in and also his remuneration. This will not be considered as discrimination as it is logical and acceptable by the insurance companies.
A perfect balance should be maintained between a short term impairment scheme and a long term impairment scheme. The reason for this is that a short term impairment scheme deals with more frequent claim than a long term impairment scheme. In some cases the long term impairment scheme may never be claimed.
There are some other considerations for encouraging the short term impairment scheme, it sometimes makes sure that the worker insured, returns to work very quickly as the short term benefits tends to end. In some cases the worker might be back to work at a reduced pay scale to sustain himself or herself. However long term impairment schemes generally do not have this option.
Smaller enterprises have to keep in mind that it is very important for the management to motivate any worker who requires an impairment scheme, to come back to work as soon as he or she is physically in a position to do so.
- In some cases the worker tends to enjoy the benefits of a longer period scheme. Even after he or she is actually physically capable of returning to work.
- A properly thought out scheme will urge the worker to come back to work, as his short term benefits will cease to exist, but at the same time the enterprise has to also make sure that the worker gets proper counselling, so that the worker is not forced but motivated to come back to work.
Cost - of - living adjustment :
This is a clause in the longer impairment scheme, which is not known to most people. This is called the ‘Cost of living adjustment’. This sometimes gives the smaller enterprises, some advantages over large enterprises.
In this clause there is a calculation done to counter inflation, and it helps the person who has claimed a longer impairment scheme to deal with increase in price, and it is generally done once a year, based on ‘Consumer price index’. It is observed in many cases, that this clause is applicable throughout the period of the benefit period, maybe till the age of 60, or ‘Normal retirement age’. This facility is in most cases not available to the workers of larger enterprise.
- Let us consider a scenario where this counter inflation clause is not there, then say a worker becomes impaired at an early age and is unable to gainfully engage himself or herself for about twenty years, then by the ‘Rule of 72’ the monetary benefit of the person will be halved by the 14th year, taking into consideration a nominal inflation.
- However this extra benefit comes with extra cost to the enterprise taking the scheme, the increase is typically in the range of about 18-20%.
- Having said that the extra cost is over compensated in a smaller enterprise, which has 10 or less workers, typically pays 200$ to 300$ each month and will have to shell out an extra of max 60$ for the extra benefit.
Supplementary impairment schemes :
Long term impairment can be detrimental for the finances of anyone, hence with the betterment of workers who are not very highly paid, the enterprise must keep in mind that the highly remunerated workers as well as the entrepreneurs themselves should be protected.
- The companies providing the betterment scheme have something called the ‘Non-cancellable scheme’. This is a scheme for which the terms and conditions remain the same throughout the tenure of the scheme, sometimes well beyond it.
- These schemes are totally binding, there can be absolutely no change in terms and conditions, these include any inclusion of provision by the insuring company after the contract is signed.
These schemes can be carried along even if the person changes his or her job and moves on. It is important to have supplementary scheme in a longer period impairment scheme. There are various reasons for that.
- One of the major reasons is taxation, under the United States income tax law, if the betterment scheme is paid for by the enterprise the worker is working for, then there are tax implications.
- Let us consider that the worker is getting 100% benefit as the enterprise bears the 100% cost of the betterment scheme, in this case the, if there is a claim the claim amount will be taxable to the worker.
- Generally a once claimed the worker gets 60% of pre impairment remuneration as the claim amount, but after taxation this amount goes down considerably, typically it is 1/3rd lesser.
- It is often noticed that the workers do not know this until it actually happens. In some cases the workers with high or very high remuneration, gets as low as 30 to 20% of their pre impairment remuneration.
- In some cases the restricted nature of longer period impairment schemes, result in a unique situation where, the workers who have very high remuneration when working are often get the lowest take home benefit in case he or she has to avail the scheme after any impairment.
- This is something the smaller enterprises face the most, as only two or three workers are very highly paid, and in case of any claim they end up getting a $5000 take home. This is due to the agreement that was made at the time of taking the betterment scheme. The company providing the betterment scheme, generally take the average of 2 or 3 most highly paid workers as sum assured.
- Another aspect which needs to be discussed is that, often enterprises offer dividends, in addition to the basic remuneration, to its workers for better performance; these dividends are not covered by the group long period impairment betterment scheme.
- Sometimes the workers are offered stock of the enterprise as dividends. These are also not included in the basic remuneration, while calculating the benefit. The trend of the industry is that a workers’ total remuneration is split into basic plus add-ons like dividends, stock, but while calculating the benefit for longer period impairment, the basic remuneration is taken into consideration. It is to be understood that a group longer period impairment scheme, can be cancelled by the company offering the scheme or the management of the enterprise where the worker is working.
- It is therefore prudent to take a supplementary scheme, which is bound by agreement that neither party can cancel it, the scheme can be availed even if the worker changes the job. This is very important for smaller enterprises.
- Further when an enterprise buys the scheme for more than one worker, then the cost of taking the scheme goes down considerably. Typically a price reduction in the range of 15% to 25% can be achieved, again more the people are included in the scheme, the price reduction further goes up. The price reduction is a permanent feature, this can be availed by the worker even if he or she switches jobs. For women there are even more benefits.
Life insured schemes for multiple workers :
The life insured schemes for multiple workers are not very practical for smaller enterprises which have not more than 10 workers. The matter is that the sum assured are very low in cases where mandatory medical tests are not done before taking the scheme, the sum assured in these cases is in between $ 10000 to $ 50000. If one wants to have more sum assured then the medical check-ups become mandatory, this process is too complicated for smaller enterprises. And even with the mandatory check-up, the upper limit is mostly restricted to $ 100,000 for each worker.
- Keeping the price factor in mind, smaller enterprises should not to take life insured schemes.
- However if these enterprises which do not have more than 10 workers, need to take scheme, it is advisable not to take schemes for multiple workers, instead it should cover each of its workers as an individual. In doing so the workers are not tied to a multiple worker scheme, and will have the freedom of taking the scheme when he or she takes up another job.
- Depending upon the health of a worker, he or she can take benefit of the scheme for up to say 20 years, also for the enterprise the pricing of taking a scheme for each of its workers separately can actually be less than a scheme which is for multiple workers.
- In some cases the management of the smaller enterprises do not take a scheme until it crosses the limit of 10 workers, but this think process is viable for small enterprises which are forecasting that their workforce will exceed 10 in the very near future.
- As soon as the enterprises’ workforce crosses ten, then it can opt for the life insured schemes for multiple workers, which have real value, in terms of finance and also as an incentive for its workers to continue in the enterprise.
- As discussed earlier, extensive knowledge of various schemes is very important for both the management as well as the worker, with so many disadvantages of a scheme for multiple workers, some prefer to stay with it, which is totally not recommended.
- ‘Life Insurance Marketing Research Association’ is an agency which gets its funds from the insurance sector, has done extensive market research, regarding the pattern and habit of people taking insurance.
- Their study shows that of all the people who have enrolled for life related betterment schemes, 50% have a huge difference between requirement and actual coverage.
- The survey further finds the reason for this. The reasons vary from loan repayments, saving for child’s higher studies to saving for self after he or she retires and lastly, life insurance cannot be afforded.
- The study exposes a few truths, firstly most people do not have the adequate knowledge of various schemes, secondly there are many options to procure betterment schemes and finally in the past 20 years the average living age has increased, hence making the scheme cheaper.
- Having said this, life insured schemes for multiple workers can also be beneficial for workers of smaller enterprises; these schemes need to be dynamic in nature and aim for being the most beneficial in terms of return on investment.
- It is often noticed that for a scheme where the enterprise pays for the workers’ betterment schemes, benefits can go range anywhere from $ 100,000 to $ 400,000.
- Study shows that the cost to company for such betterment schemes, for enterprises which have about 15 workers, works out to be about $ 300 per month, this however depends upon the nature of work, geographical location and various other factors.
Death or loss of limbs in an accident :
It is not mandatory but still some insured schemes do cover death or loss of limbs due to accident. This gives extra cover to a person in case of an accident.
- The cost of this extra coverage is generally 2 to 4 cents for each $1000 of insurance. This may increase if the enterprise engages its workers in work place which are dangerous in nature, and have more risk of accident than normal.
- There is a slight downside to this, if the insured amount is more than $ 50,000 and the premium is paid by the enterprise for which the person is working, then this is taxed by the IRS under section 79. Of the law.
- Though this is taxable, but is more cost effective than to buy one’s own scheme. This makes the scheme viable. It is observed that because of this taxation many enterprises keep the benefit below $ 50000, but as a small enterprise grows, its workforce also increases hence the number of schemes also increases, this is when the premium becomes cheaper.
- Smaller enterprises tend to take these betterment schemes for multiple workers, and the benefits are generally twice the remuneration of the worker, sometimes going up to $100,000 to $ 400,000.
- Having said that the management of smaller enterprises should try out various schemes to suit their worker based requirement.
Optional life insured scheme for multiple workers :
The management of any enterprise may give an optional scheme to its workers on top of the schemes as discussed before.
- For smaller enterprises, these optional schemes have many restrictions like the sum assured is very less, something in between $ 25000 to $ 50000.
- Until the enterprises are large, which typically have more than 250 workers, or the management of a smaller enterprise is subsidising the cost of buying a scheme, there are no substantial discounts when one compares with schemes individually.
- The reason for this is that the cost of single schemes has reduced in the past few years. This also shows that if a person had got a scheme say 10 years back and get one now, the cost will be more or less same, of course considering that his health condition has remained the same.
Group universal life coverage :
One more option of betterment scheme is the ‘Gul’. This scheme is given typically by enterprises which have a workforce of about 100. This type of scheme is a mix of both betterment scheme for multiple workers and scheme for single worker. It has the benefits of both the schemes like, this scheme is low cost effective like a multiple worker scheme, at the same time it can be carried along if a worker changes a job, this feature is like a single worker scheme. This is a scheme where the management of the enterprise has to be fully aware of what is in the offer; there are some features like availing of loan, getting interest on the investment among others.
Life insured and workers :
The guaranteed universal life schemes are often longer period fixed schemes, like a truly comprehensive scheme.
- Although the payment of the insurance premiums is not tax deductible, any increase in the cash value of the insurance scheme due to investment gains is not taxed until you begin to withdraw the money after you retire.
- This aspect of the scheme is not known to most of the workers, hence when a worker changes job he or she needs to find out the cost involvement of this scheme as opposed to taking a single scheme.
- If the worker does not add-on cash values then this become even more prominent.
- ‘Gul’ schemes have different cost for different situations, like if a person is male or female, or of the person smokes or not.
- This scheme at times is at par with full time schemes as far as cost involvement is concerned, if the worker himself or herself takes the scheme.
- It has been observed that even if the schemes are bought like full time schemes, they are not as good as full time schemes, in the long run.
- This is even more relevant for people who are in the upper bracket and can avail ‘shelf’ or ‘street’ schemes.
In most cases the smaller enterprises do not have dedicated personnel to look after the welfare of its workers; hence the management are often unaware of benefits and shortcomings of life schemes which are for multiple workers and schemes which are for individuals. Same is the case for physical impairments schemes. When planning betterment schemes it should be kept in mind that the scheme should be a mixture where the enterprise pays some part of the scheme and the worker himself or herself pays for the other part to make it viable for short as well as long period of time, also the scheme should be adaptable.
This brings us to the point where the management of a smaller enterprise should communicate with its workers about the benefits of the betterment schemes; this will create a healthy environment in the organisation as the workers will understand that the management is taking good care of their needs. This will give the enterprise better workers and also the workers themselves will be well protected in their life.