No One Needs Insurance Until They Need Insurance: Proper Enrolment for Employee Benefit Plans

Dec 02, 2015

While most people would agree that it would be too late to purchase car insurance after there has been a car accident, many people do not see employee benefits in the same light. This is problematic because no one thinks they need insurance until they actually need insurance.

We have run into multiple situations in which employees are insistent on not enrolling onto their company’s plan and paying a portion of the monthly premium because they are healthy and do not currently have claims. These same employees will ask to be enrolled once they have a medical incident and realize that there is a potential they will need disability or life insurance or their family has upcoming dental appointments. This line of thought is logical because most consumer products in the marketplace such as clothing and plane tickets are sold because they will be used. An employee benefit plan, however, is not a retail product – it is insurance!

Fundamental to insurance is the collection of risk and spreading it across all members so that the low claimants subsidize the high claimants, leading to affordable and reasonable insurance premiums. This operates in the same manner for all insurance products including life insurance, home insurancecar insurance to an employee benefit plan. If only employees who are of poor health enroll, the premiums required to support the plan would be astronomically high.

To protect an employer’s benefit plan from the scenario described above, all insurance companies have rules of when employees should be enrolled and it is typically within 31 days of eligibility. For example, if there is a three month waiting period, employees should be enrolled within 31 days, after the waiting period has elapsed. If employees are late, they will need to submit medical evidence and could potentially be declined coverage for all benefits. If coverage is granted, there will be heavy limitations for the first year’s dental care coverage. The only scenario for employees to waive health and dental coverage is if they are covered by their spouse’s plan.

When explaining to employees why they need to enroll onto a plan, it is perhaps easier to advise that this is insurance and “no one needs insurance until they actually need it”. Similar to how they would not buy home insurance after a fire has occurred, employees need to understand that they need to be on the employee benefit plan when they are eligible – not when they have a claim or their health declines and they realize that they now need coverage.

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