Avoid the Hidden Costs in Benefit Plans with Risk Mitigation
Employee benefit plans are more than just a compensation tool. They are promises between the employer and employees, often legally binding and emotionally charged, that need to be carefully structured to protect everyone involved. Our Zoomcast, Risk Mitigation in Plan Design, tackled the very real and often overlooked issues that arise when those promises are misunderstood, miscommunicated, or misaligned with the organization’s actual capacity and intentions.
What Is Risk Mitigation in Benefits?
Risk mitigation in plan design is about minimizing the likelihood and severity of problems before they occur. It’s something most people do instinctively. For example, we leave early to catch a flight or wear a helmet when biking. Yet in the context of benefits, it requires deliberate planning, ongoing education, and a deep understanding of how small oversights can lead to significant consequences.
One example from the session involved a young employee whose life insurance claim defaulted to his estate. This made the payout taxable simply because he hadn’t named a beneficiary. A simple oversight, but one with a serious financial and emotional outcome.
Life and AD&D Insurance: Overlooked Liabilities
Missed enrollments, outdated salary records, and misunderstood non-evidence maximums can lead to denied claims and liability for employers and advisors alike. These risks are compounded by unclear beneficiary designations or assumptions that a flat benefit adjusts automatically with salary changes. Employers and advisors must ensure both parties understand the limits and responsibilities around life and AD&D coverage.
Long-Term Disability: The Most Misunderstood Benefit
The financial implications of long-term disability plans are often underestimated. One scenario discussed involved an employee not being enrolled in time, which could have exposed the employer to over $1.6 million in liability. Ensuring timely enrollment, accurate salary reporting, and alignment between maximums and non-evidence limits is essential.
Premiums for LTD are already high and rising. With increased scrutiny on mental health claims and longer-term absences, clients must have a clear philosophy for how LTD fits into their broader compensation promise.
Critical Illness: Understanding Definitions and Exclusions
Many employees misunderstand what critical illness insurance actually covers. A diagnosis of “heart attack” or “cancer” might not meet the definition required to trigger a payout. Pre-existing condition clauses, coverage limitations, and poorly defined employee communications all contribute to confusion and disappointment.
Advisors must carefully communicate the nuances of these plans. Otherwise, employers risk offering a benefit that sounds valuable but proves to be a liability when expectations are not met.
Health and Dental: Managing the Moving Target
High-cost drugs, off-label prescriptions, and vague policy wording can create major risks. For instance, prescriptions like Ozempic, commonly used for weight loss, are being re-evaluated by insurers, potentially moving them under special authorization criteria. This change could affect employees without the employer even realizing.
Managed formularies, appropriate stop-loss coverage, hybrid models, and plan maximums help mitigate exposure. Health and dental benefits should not be “set and forget” line items. They require ongoing attention and adaptation as usage trends and plan member needs evolve.
The Advisor’s Role: Educate and Motivate
Advisors must move beyond the transactional and into strategic partnership. Regular client education, monthly financial reporting, and proactive plan design conversations establish trust and value. A renewal conversation should never be a surprise or a source of stress.
Clients who understand how their benefit plan works and why it’s structured the way it is are far more likely to remain loyal. In contrast, those left in the dark may start shopping for someone who can explain it all.
No One-Size-Fits-All Solution
There is no perfect benefit plan design. What works for one business may not work for another. The most effective plan is the one that aligns with the client’s goals and risk tolerance. That means advisors must ask deeper questions, offer flexible solutions, and tailor the structure accordingly.
A benefits plan is a promise. The employer must decide what that promise looks like, and the advisor must help them understand what it will take to keep it.
Risk Tolerance Is a Conversation, Not a Checkbox
If you are not having risk mitigation conversations with your clients, someone else will. Educated clients make better decisions. Informed clients stay loyal. Advisors who take the time to have these conversations are not just selling coverage. They are delivering long-term value.
If you’re looking to elevate the value you deliver to your clients through strategic plan design and risk mitigation, our team at The Benefits Trust is here to support you. We’ll work with you to craft custom benefit solutions, help you frame future-focused discussions, and equip you with the tools to protect both your clients and your business.
