With employee benefit open enrollment season here for many employees, it is time once again to delve into the exciting world of employee benefits. Unfortunately, not everyone seems to find this exercise quite as exhilarating as we in the financial planning business do. A recent survey by Aflac found that 23% of respondents would rather clean their toilets than research their benefits. With the complexity of the health care and insurance industry in America today, this isn’t surprising. There are far too many variables to consider than could be covered in a short article, but there are a few broad themes to consider when you receive your 10-pound packet of information.
1. Be on the lookout for free money.
Companies will often try to steer employees in certain directions especially when it comes to health insurance by offering varying levels of employer participation in costs and even contributions to tax advantages plans like HSAs. While it is important to consider your personal situation and to discuss with a health insurance expert the merits of such plans, an intentional strategy that takes into account your health and financial situation may allow for big savings.
2. Consider your actual needs when reviewing disability insurance coverage.
In working with clients, I find that most people that I come into contact with may know some of the details of the life insurance provided through their employer but rarely know the specifics of disability insurance. Many employers now offer a “base” plan and a “buy-up” plan that cover perhaps 50% and 60% of income respectively. While it’s still important to consider your actual needs and the costs, getting the maximum amount of disability insurance through work is often a great way to go. More and more employers are also offering the ability to pay for these benefits with after-tax dollars. While this may mean more taxes now, should you make a claim, the payment would come to you tax free. The mistake that many employees (especially younger) make is thinking that group coverage alone is enough. I know very few young professionals that can live, save for retirement, continue health coverage and pay medical bills on 60% of their income. If you are one of the few that can – congratulations. If you are like most of us, consider looking into a supplemental policy that you own personally, as even a short “longer” term disability (greater than 90 days usually) can wreck an otherwise sound financial plan.
3. Compare group life insurance costs to private policies.
Many employers offer a small amount of term life coverage (perhaps 1x income or $50,000) as well as options to buy up additional coverage. When looking at purchasing additional insurance, it is important to consider both your needs with respect to amount and years of coverage as well as the cost now versus the cost in the future. Some buy-up programs have age bands that can be attractive at younger ages but can be cost prohibitive as one ages. Also, getting this coverage in place while you are young and healthy reduces the risk of not being able to obtain reasonably priced insurance later in life should health problems arise. Lastly, it is important to be intentional about considering the amount of insurance you need as rules of thumb don’t address specific situations.
4. Circling back to free money – take advantage of employer matching in retirement plans.
While some employers automatically enroll employees in retirement plans like 401(k)s to get the maximum employer match, many do not, and we see employees missing out on a “raise” of up to 5% or more in some cases by simply not taking advantage of this. While budgetary constraints may be prohibiting you from participating, consider the fact that an employee missing out on a 2.5% match for one year at a salary of $50,000 may be forgoing well over $5,000 of assets 20 years into the future. If you ever feel like you aren’t paid enough for your work, a great way to “stick it to the man” is to get all the free money you can.
It should go without saying that being intentional about getting the maximum value and protection out of coverage through work should be a top financial priority for many families. Since most of us would rather clean toilets however, we encourage you to reach out to us with questions in the coming months as you look at these opportunities. We are honored to be your Partners in Conversation!