A group Disability Income plan that pays tax-free benefits to covered employees is considered:

In this context, a fully contributory group Disability Income plan refers to an arrangement where the employees themselves pay the entire premium for the coverage. The significant aspect of this type of plan is that because employees are responsible for the entire payment of premiums, the benefits received from the plan in the event of a disability are typically tax-free.

When premiums are paid fully by the employee, there is no tax liability on the benefits they receive because the payment was made with after-tax dollars. This makes such plans particularly attractive to employees, as they can rely on the income benefits without worrying about tax deductions on the amount they receive in the event of a disability.

In contrast, other types of plans, such as non-contributory plans, do not require employees to pay any part of the premium, and benefits may be subject to taxation, depending on the specific circumstances. Partially contributory plans involve shared premium payments between the employer and employees, which can also affect how benefits are taxed. Employer-sponsored plans can include various contributory arrangements, but it is the fully contributory arrangement specifically that highlights tax-free benefits for the employees.