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Each year many employers, particularly larger companies, offer their employees a chance to enroll in benefits or change their prior elections. In the accompanying video, Alexandra Stewart CFP® highlights the common areas we discuss with our clients. If you want to review these, or any unique benefits your employer offers, we consider that an important part of the advice we offer. Don’t be shy about coming to us for advice on any and all of your financial decisions.
Health Insurance: There are many perspectives on this inherently personal insurance. While you weigh your preferences for physician networks and referral requirements, you might also consider the financial dynamic. Your choice will typically include a tradeoff between the premiums you pay and the costs you share.
Lower premium plans require you to share more of the costs in the form of deductibles and copays. You definitely save the premium, but you might or might not pay for the first dollars of care depending on your health needs in the upcoming year.
Alternatively, higher cost plans spare you most of those copays and deductibles. If your employer subsidizes the premiums, your cost for this peace of mind might not be very much. We observe wide variance among employers in this premium versus cost-sharing spectrum. The right answer for you may be a surprise.
Disability Insurance: Until you’ve accumulated your millions, your ability to earn a paycheck, contribute to your retirement savings, and accrue pension benefits are your most important financial strengths. Disability insurance provides replacement income if you are unable to work due to sickness or injury. It’s very important, and so we suggest getting as much as your employer offers.
There are some important tax issues on this item. Specifically, if you or your employer enjoys a tax break on the premium, watch out…the benefit will be taxed. As if a disabling illness isn’t bad enough, imagine trying to live off 60-67% of your covered wages if that is more like 40-50% after taxes.
If your employer lets you pay the premium through an after-tax deduction, that solves the problem. If they pay the premium for you, ask if they impute the premium as income on your W-2, which also solves the problem. Other issues to watch for are coverage caps and limitations on some compensation, like bonuses or commissions. If your employer-disability provided insurance isn’t enough to protect your financial security, we can offer a referral to an agent who can discuss supplemental coverage.
Life Insurance: Beyond the basic coverage most employers offer, some offer voluntary supplemental coverage in increments of your salary. A unique aspect of group life insurance is that it may have relaxed medical underwriting requirements. If you aren’t sure if you need it, you could consider signing up for it as a placeholder while you explore your options in the private insurance market, where you can expect the underwriting process to be thorough and take several months.
Prepaid Legal Services: Your employer may offer a wide variety of other benefits, some of which will be more useful than others. One we look for is Prepaid Legal Services, which enrolls you in a network of attorneys who agree to provide services in exchange for a portion of the collective premiums paid for membership. If you envision a need for covered legal services, this could be a cost-effective way to pay for them.
Retirement Plans: While you can change your retirement plan contributions and investments at any time, this time of year is a good reminder to look at those. If we haven’t reviewed your plan options recently, consider sharing a statement with us for a review.