In a long-term disability (LTD) plan, a non-contributory plan is a group disability insurance plan where the employer pays the entire cost of the disability insurance premiums on behalf of its employees.
Under a non-contributory plan, employees are not required to make contributions or pay premiums toward their disability insurance coverage. Instead, the employer bears the full cost of the premiums.
What Is an Example of a Non-Contributory Group Insurance Plan?
For instance, imagine an employer offers its staff a group disability insurance plan where no one needs to chip in from their paycheck. The employer foots the entire bill. Let’s say this plan provides income protection if you’re unable to work due to illness or injury, and all full-time employees are automatically covered—no sign-up required, no deductions, and no complicated application process. This “all-inclusive” approach is the essence of a non-contributory plan.
Automatic Enrollment for Eligible Employees
In most cases, all eligible employees are automatically enrolled in a non-contributory disability insurance plan. Since the employer pays the entire premium, there are no out-of-pocket costs or contribution requirements for employees to worry about. This means you don’t have to take any extra steps or fill out additional enrollment forms—coverage is provided to everyone who qualifies under the plan’s terms.
Are Plan Design Options Limited?
Non-contributory disability insurance plans often come with fewer plan design choices than policies where employees contribute to the premiums. Because the employer covers the entire cost, they typically select a standard package that fits the needs of most employees, rather than offering a wide array of customizable features.
As a result, employees may have less flexibility in tailoring the benefits or adding optional coverage compared to contributory or voluntary plans. Therefore, it’s important for employees to carefully review the terms of their non-contributory disability insurance plan and understand the scope of their coverage.
