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You’ll need to figure out how much money you’re willing and able to spend for group coverage and then calculate the cost:
- By percentage of payroll. Calculate an amount as a percentage of your total monthly and annual payroll.
- Per employee per month. Calculate how much you could spend per employee per month. Determine a bottom-line maximum figure, without worrying about such variables as employee contributions or dependent coverage. Based on your budget, you can figure those variables later.
- Consider cash-flow issues.
- Monthly premium commitment. Most insurers require payment on the first day of the month covered. You would pay for April coverage on April 1, May coverage May 1, and so on. If you’re buying coverage for the first time or replacing existing coverage, the insurer will likely ask for a month’s premium in advance.
- Grace period. Most insurers offer a 30-day grace period on paying premiums. If you’re a few days late, your policy isn’t likely to be cancelled. Ask about your insurer’s grace period and notification policy regarding cancellation.
- Cancellation/reinstatement. If you’re habitually late with payments, your insurer has the right to cancel your group insurance. Most insurers have their own procedures for reinstating cancelled polices, so be sure to ask.
- Premium increases. Most premiums are renewed annually, which means the insurer can adjust the price once a year. Some plans allow insurers to increase premiums every six months. By law, you must be given at least 30 days’ notice of a proposed increase.
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Part 1: Insurance Basics