While reviewing a group of quotes before presenting them to my client, I ran across a scenario that i wished to discuss. Right off the bat I should say that a defined benefits plan is not a cheap thing to buy but it is a very important purchase for any company from emerging to mature. When determining the best quote, you should always make sure that you have a decent “Stop-Loss” provision – it will help save your cash flow!
A Stop-Loss is basically a cut off switch for benefits claims. It says to you, (the business owner) that: “if you have claims that are above a certain dollar value, only $x will be the amount that gets dinged against your claims experience”. This stop loss will vary from insurance company to insurance company.
The effect? Your rates are determined by your claims experience – simply put: the more you use your benefits plan, the more you will pay for it. (it is not a free ride). The reason for having a stop-loss is to ensure that catastrophic or really expensive claim events don’t skew the numbers against you.
If you have someone that requires expensive drugs for instance (there are over 15 at the moment in Canada), your claims experience won’t feel the effects of the total expense; which is good for your bottom line!
While this is a simplistic description of the stop loss provision, it is essential that as the person charged with buying the group plan for the company, you recognize that there are small details in the contract that can have huge effects in the future.