Daniel Stewart

What is a Premium Only Plan?

Employers can offer many different types of health-related benefits to workers. From employer-sponsored health insurance to health savings accounts, these benefits can make all the difference when faced with sky-high hospital bills or unplanned expenses. Most people are familiar with the basics, but there are a few lesser-known benefits worth exploring if offered by your company.

One example is a premium only plan (POP). Premium only plans are a type of Section 125 Cafeteria Plan that allows you to pay for employer-sponsored insurance premiums with pre-tax dollars. With your typical group insurance plan, your employer pays part of the premium, and you must cover the rest. With a POP, you pay your premium directly from your paycheck before it's subject to income tax.

The Benefits of POP

There are many reasons to participate in premium only plans. One of the biggest is to pay less taxes! Without a POP, you're spending your take-home pay to cover premiums. It might as well be another expense. POPs eliminate that burden. You don't have to worry about another bill or budget for your premiums.

It's automatic and comes from pre-tax dollars. That also means that you will pay less in taxes. Because the POP pulls from your salary before income tax comes into the mix, it reduces your taxable income. Think of it as a tax deduction. Throughout the year, those premiums will add up and can significantly reduce your taxable income, resulting in a lower tax bill.

You'll also enjoy higher take-home pay. Who doesn't want that?

Your employer benefits from a POP, too. For every dollar of contribution employees make to a POP, your employer will save over 7 percent on FICA taxes. It's beneficial all around.

Furthermore, POPs let your employer take pre-tax deductions to cover many different types of plans. In addition to group health insurance, it can go to group vision, dental, disability and term life insurance. If your company doesn't offer POPs, consider bringing it up before the next enrollment period. It can greatly benefit you, your employer and your colleagues.

Author Resource:-

Daniel Stewart has been helping people with their money management and personal finance with over 15 years' experience in business finance. You can find his thoughts at savings investments blog.