Photo credit: “Phalinn Ooi” by phalinn on Flickr
For those of you who didn’t know, I was lucky enough to welcome a baby girl into my life last year. With this delightful event came quite a bit of discussion over how our lives were going to change. Chrystal (i.e., Mommy) is a full-time employee, and so has benefits through her group plan. While on maternity leave though, she had to decide whether to give up her benefits (and get health and dental coverage under my plan), or continue her own coverage but pay 100% of the premiums (previously her employer paid 50%). Unfortunately, dropping Chrystal’s plan to go solely under my spousal coverage, while certainly less expensive for us month-to-month, means that she also loses her Life and Long Term Disability insurance that she had through her group.
This became a difficult decision, as the price of her coverage (again, 100% of the cost) is significant, and she was going to be losing a good chunk of her income as well (no extra maternity benefits at her job), for a double-whammy hit to the wallet. In addition, in many cases, Chrystal would not be eligible to claim on her Long Term Disability insurance should something happen to her while she was on leave (technically no income to insure). This would seem to make a pretty good case for dropping Chrystal’s benefits while she is on maternity leave, with the intention of going back on plan when she returns to work in a year.
However, Susan Cranston (assistant vice-president, group small business, marketing & advisor services at Manulife Financial) has some good points to consider before any expectant mothers discontinue their LTD coverage:
“In the majority of cases (if not all), we don’t think it’s a good idea,” she says. “While it might seem like a good financial decision for the plan member at the time, unforeseen future events could have negative consequences in the long run.”
Here are four points Cranston recommends you think about, and discuss with your family, your employer, and/or your financial advisor:
- Break in coverage: Discontinuing coverage for a maternity leave is a “break in coverage.” This poses a potential problem if, during the maternity leave, the plan member has tests or is treated for a condition that evolves into an illness after she returns to work. If a connection is made between the tests and the illness, coverage could be denied under the pre-existing condition clause.
- Greater level of coverage: Group benefits provide a greater level of coverage (income replacement). If the plan member became sick or injured during the maternity leave, provincial Employment Insurance coverage would only provide coverage for 15 weeks (after a two week waiting period). Following that, the plan member would have no income. The provincial plan generally pays less at (50 or 55%) than a group LTD plan. Just to be more clear: if the plan member became sick or injured during the maternity leave and did not opt out of coverages she may be eligible for LTD benefits as of her scheduled return to work (RTW) date.
- Qualifying period: The plan member could satisfy a portion or all of the qualifying period during the remainder of her maternity leave, and if eligible, based on all other contract provisions, benefits could begin as of her scheduled RTW date. If she does opt out she will only have whatever benefits are available to her through the provincial employment insurance program which is often a very limited time period.
- Possible waiting period: Also, although very rare, a plan member might need to go through a waiting period after returning from the maternity leave. Rare, but still something that must be considered when a plan member is considering a decision like this. This used to be more rare when a maternity leave averaged six months or less as many contracts do not require a new waiting period be satisfied as long as the absence is not more than six months and premiums continue to be paid. The employee would still be considered an active employee for benefit purposes. Now that a maternity leave can be up to one year the employee may find she needs to satisfy a new waiting period depending on contract wording.
If you have any questions, leave a comment or give us a call. Here’s to a fantastic 2014!