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What Are Elective Benefits?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 27 June 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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In the insurance industry, elective benefits can refer to lump sum payments accepted in lieu of installments, or to benefits packages employees can pick and choose from to select what they need. In both cases, the benefits come with rights and responsibilities that are important to understand before making a final decision and signing a contract. People have the right to clear explanations of any benefits they receive, including a plain language overview of what is and is not covered. This can be provided by an insurance representation or human resources staff member, if the benefits are connected with employment.

The first sense of this term involves payouts to people who experience severe injuries or acquire disabilities. Insurance companies traditionally offer a series of payments on an installment plan to provide ongoing support over a given period of time. Beneficiaries can elect to receive a single lump sum payout instead, if this would better suit their needs. There may be a variety of reasons to do this, including a desire to settle debt or make more funds immediately available. One potential risk is a tax penalty, which should be considered.

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Employers may offer elective benefits packages as part of compensation for their staff. Members of a company who are eligible for participation in the benefits program can receive a list of the available options. These may include extra riders on health insurance, like dental and vision, along with life insurance and income protection. Receiving benefits through an employer can be less expensive, and may create more loyalty among staff members who consider benefits to be an important part of compensation.

With any elective benefits package, it is important to review terms and conditions. In the case of a lump sum payment, the beneficiary may want to compare the total payout with lump versus installment payments. Potential tax penalties can be an important consideration; the sums may be equivalent, but one could result in paying more in taxes and pocketing less of the payment. Accepting the payout may also settle the claim permanently, with no additional recourse in the event of further problems.

Benefits sponsored by employers can also come with important caveats and riders people may need to consider. When looking at an elective benefits plan, employee responsibility varies; employers may partially fund insurance by deducting from paychecks, for example. Furthermore, deductibles can create out of pocket expenses before elective benefits kick in.

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