If you work for an employer it may be that time of year to fill out your annual benefits form. I know it may be tempting just to check off everything you chose last year. Save this post and use it to work your way through your choices and potentially make some better decisions.
Health Insurance: Most of these forms will start with your health insurance. You may have seen cost increases over the last few years and these increases are likely to continue. If you have not already, you may want to move to a high deductible plan to potentially lower your premium. You may find that your out-of-pocket costs go up but you should find that your monthly premium goes down. Some companies will actually contribute to a pool of money that you can draw from to help pay for your non-covered expenses.
Health Care Savings Account (HSA): Should you choose a high deductible medical plan, you may be able to contribute to a HSA. HSA contributions can be tax deductible and, if you use the money for medical expenses that are not covered by your health insurance, the distributions can be tax free. There is an annual limit for contributions and you might find that your company will even chip in and add money on your behalf. (Make sure you read my post on “How You Can Build a Tax Free Bucket of Money to Be Better Prepared for Health Care Costs Later in Life” to take full advantage of your HSA. Click HERE to get it.)
Dental and Vision: I group these together because I am personally not a big fan. Some people I know swear by this kind of coverage but in my experience, I was simply trading my premium dollars for an equal return of some benefits that were paid for. I decline this coverage and make sure I keep an adequate cash reserve to help pay for unexpected dental visits in addition to my semi-annual checkups. You make the decision that is best for you and your family and either choose or deny the coverage.
Supplemental Life Insurance: Your company may offer some basic paid life insurance and if so, congratulations! Most of us have the choice of adding more coverage that we pay for. You will most likely see 2-5 times your salary offered in this section. While this can be an easy way to add life insurance coverage without having to jump through underwriting hoops, it may not be something that you want to purchase. First, the cost can look reasonable, but it may be more expensive than what you would pay getting the same coverage on your own from an insurance company. Make sure you know what the cost of your supplemental coverage will increase to, as you get older before you make your decision. Second, if you leave jobs you will most likely lose your coverage. That gives me an uneasy feeling because I never want to be put in a situation of losing the coverage. Third, I have seen too many people check off the maximum coverage amount and have a false sense of security. To do this right, you need to first figure out how much insurance you really need. What does it take to protect your family? Then, analyze your options and purchase wisely. You may want to start your research now so that you can make that good decision once you are facing your enrollment deadline. Send us a note…we can help!
Long Term Disability: Get it. Just get it. You are probably more likely to become disabled than die. Many people pile on the life insurance and ignore the greater risk of becoming disabled. It is rare for me to see someone that does not need this coverage. Consider checking that box.
Dependent Life Insurance: If you have kids or a spouse, you might check this off every year. Why not get some inexpensive life insurance for your family? It can be fine to add a small benefit here, but be careful about paying for something that you may not need and don’t forget to really think this one through. Do you really need coverage, and if so how much? If your spouse works or handles things around the home there will likely be a negative economic impact if you lost them. You should know what amount of coverage they really need and then cover the need…not just check off a box and move on.
Accidental Death and Dismemberment: I call this bonus coverage. Essentially, if the insured dies “in the right way” you get a bonus payment. To me it is like hitting the jackpot (as sad as that sounds when speaking of death), but you cannot count on the jackpot. I suggest bypassing this coverage and making sure that you cover the entire need with traditional life insurance.
Flexible Spending Account (FSA): This can be a good way to set aside some tax deductible contributions and pay for health or dependent costs by pulling the money out tax free. There is a maximum that you can contribute and you must realize that if you don’t use it for the year you lose it. I suggest adding up what you know you will spend in reimbursable expenses (read the fine print) and setting that amount aside. One of the nice benefits is that you can use your entire year’s contribution amount in January…before you contribute anything. Let’s say you sign up to set aside $1,000 in your FSA and then elect to have Lasik surgery in January. It is possible to pay for the surgery with your $1,000 or promised contribution and then fund it throughout the year as your contributions get deducted from your paycheck. Be careful if you have an HSA plan. Different rules apply and you may not be able to use your FSA money for anything that could be paid for out of your HSA plan.
When you get your enrollment form take the time to think it through. Determine what kind and how much coverage you need and take advantage of the benefits that you are offered. Then supplement those benefits with ones that you obtain on your own to round out your financial picture.