There’s a strange dichotomy that I often find when reviewing new client’s employee benefits selections: the most important benefits often aren’t being taken advantage of and the less important benefits have been selected. Open enrollment is confusing and being emailed a huge document full of the options available to you with the pressure of just a couple of weeks to decide is overwhelming.
However, making the right benefits selections (and waiving those that you don’t need) can go a long way in setting yourself (and your family) up for a better financial future. The details can seem endless and confusing. That’s why we’ve provided a list of three employee benefit that we wish were taken advantage of more often and three that you can probably go without.
A lack of proper disability insurance coverage is one of the most common (and biggest) holes that we come across in working clients’ financial plans. Many more people will pay for life insurance than disability insurance, even though you’re more likely to become disabled during your working years than you are to die.
Not having an income for an extended period of time would be devastating to most peoples’ finances, potentially even more so than passing away. Why? If you’re disabled and you can’t work, then you still incur expenses that the household has to pay (and in many cases, your expenses could actually increase). On the other hand, an untimely death means that your part of the expenses are gone as well.
Maxing out the disability insurance offered to you through your employee benefits during open enrollment is often low hanging fruit to help clients implement a better risk management and insurance strategy. However, even the maximum coverage provided to you through your employee benefits is often not enough. We often recommend supplementing with private insurance to ensure that you fill those coverage gaps.
Many people choose their health plan based on the lowest deductible. Others choose it based on the lowest premiums. And some people pick the PPO because that’s what is familiar to them and what they think will provide them with the best coverage. A proper analysis takes all aspects of the healthcare plan into consideration rather than just one or two.
As Kyle Thompson mentioned in his 2019 blog article Get More From Your Employee Benefits This Year!, we often find that the High Deductible Health Plan (HDHP) paired with a Health Savings Account (HSA) that most employee benefits packages offer is not only the most cost effective, but also provides the same coverage as a PPO plan.
Aaron Williams has previously written about why we love the HSA in his article titled The King of All Savings Accounts: The HSA. The three main benefits of an HSA are potential triple tax benefits, portability of the account and control over your money (an HSA is not a “use-it-or-lose-it” account like an FSA, and the option to turn it into a retirement account.
If you have dependent care expenses (before/after school care, day care, adult dependent care, etc.), then utilizing a Dependent Care FSA (DCFSA) is a no-brainer, if it’s offered to you through your employee benefits.
The DCFSA allows you to contribute up to $5,000 tax-free to use for qualified child and dependent care expenses, if they’re incurred so that you (and your spouse, if married) can work. You’re already paying for the dependent care expenses; you might as well take the tax break available to you.
If you have adequate life insurance in place, then Accidental Death & Dismemberment Insurance is not something that you need to consider. Life insurance will provide a benefit to your heirs no matter whether you pass away due to an accident or natural causes. AD&D insurance will only pay if something happens to you because of an accident.
Consider how cheap AD&D insurance is compared to term life insurance. Why do you think that is? Insurance actuaries know that there is a much lower probability that AD&D insurance will pay out compared to life insurance.
For example, IU Health’s 2020 Benefits Guide shows that someone age 40-44 can purchase $250,000 of supplemental life insurance for $19.38 per pay ($503.88 annually) or $250,000 of AD&D insurance for $2.08 per pay ($54.08 annually). The AD&D policy is over 9 times cheaper for a reason.
What about accidental dismemberment? Your major medical plan will likely pay for any medical costs that you would have due to an accident that left you dismembered.
Your current health insurance probably already covers cancers. (As always, you need to check your policy documents to be sure.) There are so many other things that your health insurance covers as well like stroke and heart attack, but I’ve never seen anyone pay extra for policies that cover those events. Why pay for cancer insurance? Cancer is really scary and a lot of us has witnessed how it can affect your life.
Most of the cancer insurance policies that I’ve seen offered through employee benefits packages provide a lump sum benefit, rather than ongoing insurance. (This doesn’t mean your policy is structured this way.) Also, many cancer policies will not pay benefits if your major medical plan provides coverage.
The National Association of Insurance Commissioners (NAIC) publication titled A Shopper’s Guide to Cancer Insurance1 cautions that many people do not need cancer insurance and highlights the limitations that these policies may have.
Consider this line from Consumer Reports’ article titled Critical Illness Insurance Might Not Be Worth It: “But for many, critical illness insurance is rarely worth the money.”
Critical illness and accident insurance are similar to AD&D and cancer insurance in that your money is better suited to be spent on health, disability, and life insurance. These policies typically provide a very small lump sum if something were to happen to you (think a couple thousand dollars) and the probability that you will use them is low, which is reflected in the cost of premiums.
1 A Shopper’s Guide to Cancer Insurance (National Association of Insurance Commissioners, 2006)
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