Each insured employee shall contribute to the cost of his insurance an amount to be determined by the Board but not to exceed the rate of $0.70 per month for each $1,000 of annual salary. If the annual salary is not an even multiple of $1,000, annual salary shall be considered to be the next higher $1,000. The employer shall deduct the premium from the salary payable to the insured employee. An employee who is paid on other than a monthly basis shall have an amount deducted at a proportionate rate, adjusted to the nearest cent. All deductions shall be retained by or paid to the State Treasurer to the credit of the Board and shall be available to the Board for the purposes of carrying out the provisions of this chapter. Nothing contained in this section shall prohibit any employer from making the contributions required herein for his employees, in whole or in part. If the premium is not deducted from the employee’s salary and the failure to deduct is not the fault of the employee, the employee shall be insured and the employee shall not be required to pay the amount which should have been deducted. Employees retired for service or disability shall not be required to contribute to the cost of their life insurance. If an employee is separated from the service of any public institution of higher education or of any local school board prior to completing a school year, the premiums paid shall be accepted and retained as proper to date of separation. If a state employee of a public institution of higher education or a teaching hospital affiliated with a public institution of higher education (i) is employed pursuant to a contract (a) that is for a term of employment of at least nine months and (b) that does not coincide with the normal scholastic year, and (ii) separated from service prior to completing the contract year, the premiums paid shall be accepted and retained as proper to the date of separation.