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What is a Benefit Allowance?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 29 November 2016
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A benefit allowance is an amount of money released to people under the terms of a benefits plan. Benefits plans can work in a number of ways, ranging from plans where the money needs to be used for specific purposes to plans allowing people to receive payments they can use in the way they see fit. When a benefits plan is originated, the benefit allowance is discussed in the enrollment paperwork and people have an opportunity to ask questions about how benefits are determined.

In the case of benefits plans administered for citizens by the government, like retirement pensions and disability benefits, the benefit allowance is usually based on a combination of factors. Work history is important, as is the cost of living. The level of impairment involved may also be considered, in the case of things like disability benefits, with people who need more support receiving more benefits to help them afford it.

Benefit allowances originating in things like employee benefits, life insurance plans, and related benefits plans can vary widely. The amount paid into the plan is usually a factor, as are the specific terms of the plan. People may need to wait for a period of time to elapse before they can receive benefits, and the benefits may be adjusted in response to how long people have been paying into the plan and how many years of service they have with a given company.

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In addition to receiving disclosures about the benefit allowance at the time people join benefits plans, people can also request statements at any time with a review of their benefits under the plan. The statement can be used in financial planning and people can also discuss the terms of the statement with an agent of the benefits plan if it seems that the benefits will no longer meet their needs. For example, a person might want to increase the size of a life insurance policy, or get better medical coverage.

Some employers provide their employees with flexible benefits in the form of a benefits plan where employees receive a benefit allowance and decide how they want to apply it. Rather than signing up employees with specific health insurance providers and other benefits plans, the employer gives funds to the employees, up to a certain amount, and allows them to spend the money in the way they think is most effective and suited to their needs. This is often done to avoid complaints about rigid benefits plans or gaps in benefits created by poorly administered plans.

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golf07
Post 4

I have never had a flexible benefit allowance where I was given money to use as I saw fit. I wonder how many companies actually do this as they would be giving up some control by doing it this way.

I also think it would tempting for people to spend the money on other things instead of what was specifically needed. Another problem I see with this is that many people feel overwhelmed and confused by all the choices there are when it comes to benefits like this.

It is a lot easier and more convenient for many people if the company just makes the choices for them and all they have to do is receive the benefits given to them.

John57
Post 3

After our kids were grown, we asked for a copy of our benefit allowance so we could see exactly what we were getting. This is probably something we should have done sooner than we actually did.

I think it is good to review this statement from time to time as you might want to make changes as your family grows and changes. Because of some specific health problems, we elected to purchase some supplemental health insurance ourselves.

When this is combined with the benefit we receive from the company, we have a lot more coverage and don't have to come up with so much money for extra medical expenses.

Mykol
Post 2

I used to work in the personnel department of an insurance company so am familiar with how a benefit allowance works. A good benefit allowance is something that many people look for when they are looking for a job.

If the company offers a generous benefit allowance, an employee can actually look at this as money saved, even though they don't actually see it or have to report it.

If we hire an employee and pay them $50,000 a year and they have also have a generous benefit allowance, it cost the company much more than $50,000 to keep that employee year after year.

sunshined
Post 1

With every company I have ever worked for that provided a benefit plan, I have had to wait a minimum of 90 days before the plan went into effect. For some companies it was 6 months, which seems like a long time.

Years ago I was hospitalized for an emergency surgery and had not been at my job long enough to receive the medical insurance benefits. I was only lacking a couple of weeks, but the company still would not pay because I had not met the qualifications to receive the insurance benefit.

I was pretty frustrated by that, but since then have learned to make sure I am somehow covered by insurance when I am between jobs.

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