When shopping for a short-term disability plan, the premium amounts may catch you off-guard, making you question who’s going to pay for it, especially since most short-term disability policies are only offered through worksite cafeteria plans. There’s a few different options for payment and both employee and employer usually have a say in how this goes.
Due to rising costs of healthcare, some small businesses may elect to have their employees purchase individual policies (although not usually available for short-term disability) and reimburse a set dollar amount or percentage of the premium to the employee.
Another option for business owners is to allocate a specific amount of money for each employee to spend how they want on their benefits. This is called a defined contribution. So an employee may pick a plan that has premiums above the amount specified by the employer to spend, meaning that the employee will have to cover the remaining cost of what he or she chose.
When an employer pays all of the premiums for an employee’s insurance policy, that policy is considered fully funded.
Similar to defined contribution in that the employee is funding the insurance policy, this route differs in the percentage contributed by the employee. In this scenario, the employee pays for 100% of the insurance policy. You may wonder what the benefit of getting an insurance policy through a worksite is if you have to cover the entire cost of it. But there are benefits to this option. First, certain insurance plans may be opened up to you that were not allowed on an individual basis. Second, sometimes group rates on different insurance policies are favorable to those offered on an individual basis.
Disclaimer: This information does not constitute financial advice. For specific information for short-term disability policy plans and features, consult your local insurance agent.