Insurance – an expense or a shield?

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The success of any business is like a combination lock. Combinations of many keys or numbers are required to open a combination lock, similarly, to run a successful business you need the right combination of many aspects. It may be the strategy, team, office space, system, processes and many more. Insurance is also one of the keys to open this combination lock. If you have not used it smartly it can really hamper your progress in the long run. Insurance is tricky. It’s not like buying a chair or a shirt or groceries. When you buy insurance, you’re buying a promise. It’s a promise that if something catastrophic happens to your business or health of your employees, your carrier is going to assist you to cover that risk. Sometimes, though, it’s tempting to question the value of insurance because it is an intangible product and you don’t get anything tangible when you pay for the insurance. In this country, you cannot think of running your business without a proper and in-depth understanding of insurance.

It is of utmost importance to discuss your requirements in detail with your Insurance advisors, be it health or business so that they can provide you the best possible options available.

A healthy employee is a productive employee and when you offer employee benefits, you build allegiance. You offer your employees an environment where they can work with peace without worrying about their medical bills. While providing health insurance benefits to your employees, you have some responsibilities as an employer to comply with federal rules. These cannot be overlooked at any cost. These are:

  1. COBRA – (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, the transition between jobs, death, divorce, and other life events. – COBRA requires that group health plans sponsored by employers with 20 or more employees.

  2. ERISA (Employee Retirement Income Security Act) – Set of federal laws and it Establishes, consolidates, and maintain a written plan document for each benefit plan offered – Provide a summary plan description (SPD) that explains the plan’s  terms and conditions to all enrolled employees. – Prepare tax Form 5500 for each benefit plan for the Department of Labor and Internal Revenue Service ( group having 100+ participant, need to file 5500)

  3. Premium Only Plan /Section 125 Plan /Cafeteria Plan – Allowing employees premium payments to be paid on a pre-tax basis. – Employees make contributions to their group health, dental, and term life insurance before taxes are calculated, POP is enabling them to save FICA and federal income tax (up to 30%) on their insurance deductions with every paycheck. Employers save on FICA taxes (of 7.65%.) – If POP document is not generated and you are making a  tax deduction, it tends to non-compliant and subject to penalties.

  4. Affordable Care Act (ACA) Reporting Per the Affordable Care Act (ACA), businesses with Applicable Large Employees(ALE) – 50 or more full-time equivalent employees – must provide the IRS with ACA reporting using IRS form 1094-C and 1095-C that explains what benefits they offered. Those with 49 or fewer employees don’t need to report this data unless they’re self-insured.

Do check with your HR whether they are fulfilling the above federal requirements or missing on something.

If we look at Business Insurance, the situation is not very different.  I have seen many organizations taking the insurance because they want to sign the contract with vendors and in the process miss the bigger picture. The purpose of insurance is not only to fulfill the contractual obligation but also to shield yourself from unexpected exigencies.  An example of business insurance in action is the West Fertilizer Co. explosion in Texas in 2013. The explosion did $100 million in damage to the community, including schools and hospitals. The fertilizer company had only $1 million in general liability coverage. City sued the west fertilizer and they have to face 100+ lawsuits. The reason I have shared this example is to make a point that insurance is not taken for the purpose of taking insurance. One must make sure that the risk associated with the business has been taken into consideration.

For example, worker’s compensation is one of the insurances that every employer has to take even if they have one employee working in any state. There have been many cases where the Department of Labour has come after 2 years of their audit and levied a huge penalty for not covering the employee under worker’s compensation.  It means, if you add an employee, make sure to cover him under this policy by making an endorsement to your current policy through your agent.

Insurance is not an expense rather it’s a shield for all the unexpected exigencies because life is all about “expect the unexpected” and we all have to be ready for unexpected events.

Written : Deepak Kumar Sharma, Vice President Marketing & Sales, AIS Insurance Services

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