Author: Dan Kline, Director, Financial Planning
When it comes to employer-sponsored benefits, open enrollment is just around the corner. This once-a-year opportunity is the only time you can make changes to your plans outside of a qualifying life event, such as adding a new baby to the family or changing employers.
As such, the selections you make shouldn’t be taken lightly. Here are some of the main things to consider this year as you fine-tune your insurance benefits.
According to the results of Mercer’s National Survey of Employer-Sponsored Health Plans, the cost of your benefits is projected to rise just over 4% in 2021, so it’s important to make sure you are getting the most value out of your health insurance plan.
Health insurance plans typically come in two flavors, a High Deductible Health Plan (HDHP) or a Preferred Provider Organization (PPO). There are pros and cons to each, so understanding the details will make the choice easier to make.
For instance, your HDHP plan will have a lower premium but cost you more when you get a bill from your healthcare provider. That’s because you are responsible for paying a greater share of your costs out of pocket in the form of a deductible. The deductible refers to the amount in insurable charges that you must cover before your healthcare plan starts paying claims.
To be considered a HDHP, the plan must have a minimum deductible of $1,400 for an individual but since single deductibles can top out at $6,750–$13,500 for a family–you could be committing yourself to some serious costs in the event of a medical emergency. Before opting for the upfront savings on an HDHP plan, make sure you can cover the potential out-of-pocket expenses.
If you anticipate having several medical expenses in 2021, you may find it wiser to opt for a PPO plan. A PPO can dig a little deeper into each paycheck but comes with added piece of mind by offering more comprehensive coverage. This type of plan may make sense for individuals who have chronic health conditions or regularly take prescription medications, for example.
PPO plans generally kick in after your deductible is met, but since the average deductible in 2019 was $992, according to the 2019 Survey of U.S. Employer-Sponsored Health Plans, you’ll pay far less for each medical service.
To decide which option is best for you, consider comparing the annual premiums as well as the deductible for both plans over the year of coverage.
Many employers provide a minimal life insurance policy for employees. The question is whether the death benefit will be enough to provide for your family in the event of your passing. For example, a $1 million policy would only provide $30,000 in annual income even if invested conservatively.
To provide more comprehensive protection, many employers offer you the choice to purchase supplemental coverage. This is a simple and convenient way to buy life insurance but may not be the most economical. That’s because the premiums for your employer-sponsored coverage is based on the risk of the organization’s employee population, including older individuals with more serious health conditions.
If you are in good health, an independent agent or carrier may be able to offer you a better rate, because your premium will be based on your individual risks. And purchasing your own coverage has an added benefit as well. If you switch jobs, you can easily take it with you.
Disability insurance is often the least understood option your employer provides. As a result, many people undervalue the benefits.
A disability by definition means a condition in which you are unable to work. The simple truth is, a 20 year old has a one-in-four chance of becoming disabled before he or she reaches retirement age, according to the Social Security Administration.
Without a disability policy, you may be eligible to receive benefits under the government’s Social Security Act, but the average monthly payout in 2019 was only $1,234.[i] On the other hand, private long-term disability coverage pays on average 60% to 70% of your annual salary in benefits. If you make $40,000 annually, you’d receive a minimum yearly payout of $24,000, nearly double that of Social Security.
Your employer’s plan, however, may offer far less coverage. It’s important to read the documentation, and speak with your HR department if necessary, to fully understand your employer-sponsored benefit. If it isn’t enough to cover your family’s expenses, consider getting additional coverage through a private insurer.
The open enrollment period is designed to make sure you’re getting the most from your employee benefits. Given the importance of insurance to your financial future, it’s worth spending some time to review your current coverage, as well as changes to your employer’s benefit stack, and determine the right options for your needs next year.
Looking for some advice and guidance when it comes to your insurance coverage? Contact an FNBO Financial Advisor to see how they can help.
About the Author
Dan Kline is a Financial Planner with the Private Client Advisory and Financial Planning teams within the Wealth Management group at FNBO. He specializes in providing comprehensive personalized financial planning incorporating investment, tax, protection, retirement and estate planning strategies.
[i] Facts.” Social Security Administration, 2020. Retrieved from https://www.ssa.gov/disabilityfacts/facts.html.
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