Updates to Group Insurance

Group Insurance Plans

2012 has seen a number of changes to your group insurance plan that you should be aware of.

Taxation

Disability premiums have been an employee paid benefit (or a taxable benefit if paid by the employer) for many years.  In 2012, the CRA changed the rules for Life and AD & D (Accidental Death and Dismemberment) benefits.  They are also now a taxable benefit if paid by the employer. However, the health and dental premiums still are not a taxable benefit.  That is why if the employee and employer share the cost of the benefit, the employee pays the life, AD & D and disability premiums and the employer pays a larger percentage of the health and dental premiums. 

For more information  check out this publication on the CRA web site on taxable benefits.  

If you are an employer, bookkeeper or accountant pages 40 and 41 includes a table that summarized all the information, including which benefits you need to deduct CPP and EI or include the GHT / HST and what code to use on any T4s that you need to issue.

Travel Insurance

In December 2012, Manulife and Desjardin clarified  the rules for out of province travel insurance and many of the other insurance companies will be making similar clarifications to their plans in the future.  The issue is pre-existing conditions and whether they are stable.

Individual travel plans have a clause that states that pre-existing conditions are covered if they are stable for 90 to 180 days (depending on the age of the client).  Snowbirds are aware of this clause and see their doctors as soon as they arrive back home, so should there be a change in their medications, they qualify for travel insurance the next winter. 

The insurance companies consider a condition to be not stable should there be any change to the medications you use or should you visit the doctor because of an issue related to that condition.  Note – you would be covered for anything not related to that condition.

Until recently, if you were on a group plan that had travel insurance coverage, you were exempt from that stability – but that is changing.  If you plan to travel and have had any changes to your medications, you should check witn your insurance company to see if you are covered.

The Toronto Star ran an article on travel insurance just before Christmas.  In November 2012, they also ran an article on 10 things you need to know about travel insurance that you may want to read as well.

Do you have money put aside in case of an emergency?

From the 1970s through to the 1990s, this was a no-brainer, as interest rates were relatively good on the usual savings vehicles — high-interest savings accounts and Canada Savings Bonds. But in the last decade or so, interest rates have dropped to record lows, credit has become more easily available, and we have started expecting portfolio returns significantly higher than an emergency fund would generate.

So it's understandable that the emergency account would disappear from a lot of people’s lives.

In the current economic climate, credit has been tougher to obtain and unemployment rates are rising rapidly; EI pays very little compared to many people's spend-what-you-earn lifestyle, and using a home equity line of credit in a period of declining real estate values is neither wise nor likely possible. Thanks to all that, an emergency fund is an absolute must in these economic times.

The main reasons for creating an emergency fund are to provide protection in the event of a layoff; to provide cash in the event of a sudden disability or illness requiring time off work; and to provide funds for any other possible emergency (e.g. a new roof for the home, a new furnace, car repairs, etc.).

What's in a fund?
Creating an emergency fund does not mean investing aggressively in an equity portfolio and selling when the going gets good — the money needs to be safe and secure. It should also be liquid, so that you can get easy access to your cash if need be, but it shouldn't be so accessible that it can be frittered away.

Saving grace

While this account won't be the one you use to save up for that expensive house on the beach, the more you can save the better. Still, make sure that you know that the fund isn't designed to provide money for non-essentials such as entertainment, vacations, gifts or eating out. It is designed to ensure that you can maintain a roof over your heads, put food on the table and maintain payments for essentials.

Figuring out how much you need to save requires answers to a few questions, as the amount of savings depends to a large extent on individual situations. What is your level of debt? Do you have dependents? Is your spouse employed at the same company? Is your occupation one for which there is usually a demand, so any period of unemployment is likely to be short term? Or will you be faced with the possibility of retraining in another field, which will mean substantial time and financial costs? Do you have other investments of a sufficient amount that you could access if need be? Do you have family who would be likely to help out? The general rule is that you should have at least three to six months of living expenses in your emergency fund.

Goodbye Taxman

Until the advent of the tax-free savings account (TFSA), the amounts saved in these rainy-day funds always generated interest that was fully taxable. The TFSA provides a great savings vehicle for an emergency fund and there will be no tax on the interest! With a couple both building savings of $5,000 per year each in a TFSA, there will be a solid basis of an emergency fund right there. If you feel the RRSP is more important, taking the tax refund generated by the RRSP contribution and putting it into the TFSA allows accumulation of assets that are all tax sheltered.

Employment Insurance for Self Employed

Are you self employed? Do you know some one who is self employed?

Beginning in January 2011, self-employed Canadians will be able to access Employment Insurance (EI) special benefits.

There are four types of EI special benefits:
maternity benefits;
parental benefits;
sickness benefits; and
compassionate care benefits.

If you enter into an agreement between January 31, 2010 and April 1, 2010, you will be able to make a claim for EI special benefits as early as January 2011. However, if you enter into an agreement with the Canada Employment Insurance Commission after April 1, 2010, you will have to wait 12 months before you will be able to make a claim for EI special benefits.

To determine if you should consider enrolling into this program, speak to your accountant.

If you would like to book an appointment to discuss these or other strategies, please don't hesitate to contact me directly.

For more information on this program, check out the Government of Canada web site.