Confused about which employee benefits are right for you during open enrollment? You're not alone. This video helps you be smart and avoid mistakes when picking your benefits.
John Scherer is away hunting in Wisconsin this week, so we're joined by Matthew Barnard, CFP(R).
We start with talking through health insurance. Matthew suggests that you start by thinking about your major medical conditions that might require special coverage. Next, we consider—do you have Cadillac plan that is too good to pass up? Just take it.
Do you have more recurring medical expenses each year? You’ll want to look at the policies and see the limits on the annual costs or “out-of-pocket" limitations. So, if I don’t usually spend much on medical expenses, a high out-of-pocket limit is fine. Conversely, if you usually have fairly high medical expenses, a high out-of-pocket limit is okay.
Finally, we discuss our preference for HSA plans, or Health Savings Accounts.
Then we give our top advice on the other areas of employee benefits— Disability insurance—hopefully you won’t use it, but it’s generally a good deal if it’s included as a benefit. If you get it through your employer, it’s less expensive and generally a good deal for what you can get.
Matthew also likes the option of paying for the disability policy “after tax” so that the benefits, if you get them, will be tax-free if you actually are disabled.
Dental insurance—although policies can be so-so, this can still be worth it. It can be a good deal, especially if you’re getting orthodontics, known dental expenses, and go to the dentist regularly.
Vision insurance—this varies from company to company, but is generally more of a discount program than actual insurance. If you don’t get it, you’re not doing anything wrong.
Life insurance—generally this is an affordable option through your employer. Employers often give you some amount for free or at a very low cost. If you have dependents that rely on your income, it’s definitely worth thinking about getting more than what the employer offers for free.
We often recommend more life insurance than what people get through work. One drawback to employer life insurance is that if you leave your job, you may need to go get more life insurance.
Accidental death--Matthew and Bridget both recommend that people get life insurance that covers death for any reason rather than one that specifies certain causes of death, such as death by accident. Running the numbers seems to show that putting more money into regular insurance instead of buying accidental death policies is generally a better deal.
TRANSCRIPT:
Bridget: Are you confused about all of your employee benefit options? Join the crowd. A lot of people are. And on today's episode of Friends Talk Financial Planning, we're going to be talking about how we tell people to sort it out. Hi, I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois.
I'm joined today by Matthew Barnard, who also works in my office. Before we start, though, I want to remind people to subscribe to our channel. It helps us get the word out and helps us with Google to help us reach more people. So, Matthew, when you're looking at people's health insurance options, how do you approach the situation? What do you look at?
Matthew: Yeah. So really, there's a couple of things that I really want to consider first before diving in too far. So in my mind, what I'm thinking is, number one, do you have any major medical conditions that require kind of specific coverage or specific treatments? Medications? If that is the case, I would want you to look through the different plans and see if one might be more favorable for you than the others.
Bridget: So, for instance, I think I want to go through fertility treatments this year, or something like that, or I've got a specific medical condition. So then I would look at the plans and just sort by that. Okay. This one covers fertility or this one….Let me just use that. That's going to heavily favor that one.
Matthew: Yeah. So my wife and I were actually just going through her open enrollment yesterday, and we were looking through coverage. And that's exactly some of the things that we saw that were different between the different policies.
Bridget: What else do you look at?
Matthew: Another one that it is becoming a little bit more rare. But some employers, they might have an insurance or a health plan that is just fantastic. You might call it a Cadillac plan where they cover a lot. Maybe the employer pays for it on your behalf. And if that's the case, if you have something available to you like that, you might want to just take it.
Bridget: Right and just enjoy it. Like, this is part of your benefits. I've seen this with people that have…that work for the government or different government agencies. Sometimes people are involved in unions that negotiate on their behalf, and that's a big part of why they work there.
They know that they're going to be fully covered, and they're going to enjoy their great health insurance. So what other options? What are the other things? Okay. So we've figured out like we've looked at our health conditions and then we've looked at like, okay, do I just have a great plan. And let's say we've started things out in that regard, but we need to keep evaluating. What’s the next thing we look at?
Matthew: Yeah. So next item or next kind of concept I would think about is are you someone that typically has more recurring medical expenses through the year. Kind of a larger medical expenses. Maybe you have just something that does cost a bit more. Then I would want to look at the different policies you'd have and see what kind of limits your overall annual cost. And that's kind of, in their terms, it would be called out of pocket expenses.
Bridget: So…and some people have low out of pocket, and then some people have high out of pocket. And so if I don't spend that much, usually on medical stuff, then a high out of pocket wouldn't be a big problem for me.
Matthew: Exactly. Yeah.
Bridget: Okay. What about how much emergency funds you have? How does that come into play?
Matthew: Yeah. So as far as in your emergency fund, I would at minimum want you to have kind of a reserve ready to be used to cover any deductible that you have. So, if you have a policy with a smaller deductible, maybe it's $250. Well, that should be, hopefully, pretty easy for you to cover. But there are also policies that have much larger deductibles, let's just say $2,000. You just want to make sure that you are ready and able to cover that if something were to happen.
Bridget: Then the tradeoff for that is if you do have the emergency funds to cover that, then usually the monthly payment is a lot less. So ultimately, that's probably what we want people to strive for, but you've got to deal with reality first. You don't want breaking your arm to break the bank.
Matthew: Exactly.
Bridget: Okay. Why don't you talk next about HSAs?
Matthew: Yeah. So HSAs, which is short for Health Savings Accounts. This is kind of a once we get through all the other items that we just went through, this is kind of the next step. So I would want to look at the different plans that are eligible for Health Savings Accounts. And Health Savings Accounts are just an account that you're able to save in on the side. It's not exactly tied to the health policy, but it's there and available, and you're able to save in a tax advantage way for different medical expenses. And it's an account that can build up, actually, if you don't end up using it.
Bridget: Yeah. And so we like Health Savings Accounts, not in every situation, but often if you can swing it. So again, it's something that for a lot of people, we have them aspire to. But the other thing is we're trying to be sensitive around here about jargon, and Health Savings Account, or HSA, is the actual jargon. That's not to be confused with different types of accounts, like Depending Care Account or Flexible Spending Account. There are many different types of accounts. So Health Savings Account is kind of what we would favor often for health insurance. Okay. So now we've wrapped up health insurance. Let's talk about the other benefits on the menu. What's the next one you want to think about?
Matthew: Yeah. So when you're going through something like open enrollment or you change your job or what have you. So you went through the health insurance, the other options, there's very possible long list of options you have there. One of the most important ones that hopefully you won't necessarily use is Disability Insurance.
Bridget: So that comes in two flavors: long term and short term. Sometimes. A lot of times they just have long term.
Matthew: Yeah, they very likely might just have one or the other.
Bridget: And the short answer on Disability through work, generally, I almost always say yes.
Matthew: Yeah. It's just the numbers show that you're more likely to become disabled on the job than for you to pass away. So Disability Insurance is one of those things; it's kind of like Home Insurance. You want to have it in case something happens. It could be really helpful.
Bridget: The other thing is that if you can get it through your employer, it's much less expensive. And so if you go out and buy a policy on your own, they're much more expensive and then maybe or maybe not worth it. But if you've got an employer that offers it, it's typically inexpensive for what you're able to get.
Matthew: Yeah. And one other little detail that is often overlooked, is the employer oftentimes will give you this option of paying for this policy, this Disability Insurance, either after tax, meaning you kind of paid your paycheck, you don't save necessarily tax money paying for this policy, or pre-tax, so you kind of pay for it and you save money on taxes by paying for it, which sounds good, but in this case, you actually want to pay for it with after tax dollars, because what that means is that if you were to become disabled, then you get this benefit, this monthly income actually tax free rather than being taxed on them at that time.
Bridget: Everybody likes tax free. Okay.
Matthew: Yes, they do.
Bridget: Next up is dental insurance.
Matthew: Okay.
Bridget: What are your thoughts?
Matthew: It's kind of funny to me that dental isn't covered with health because a person's teeth generally are pretty good indicators of how healthy they are. For me, dental is certainly important. Unfortunately, the policies aren't generally all that great, but I would still very much take a look at it and make sure that it works for you, make sure it works for the different needs you may have, or maybe your family or spouse as well.
Bridget: Yeah, I agree. And it can be a good deal. And it's definitely a good deal if you're getting orthodontics, it's typically a good deal, but you can look at the plan and see. Okay. Do I go to my dentist regularly and do I have anything that I know that's going to be coming up?
And am I looking at orthodontics or something like that? I know personally, when I got dental insurance, I happened to know that I was going to have a lot of cavities filled, and that's another story. And the dental insurance covered a lot of it, and it was great. So dental insurance is generally…definitely worth considering and probably a decent deal.
Matthew: Yeah.
Bridget: Vision. What's your take?
Matthew: So vision varies from place to place. So vision…you can almost look at a more of a discount program of sorts, where for eyeglasses or for contacts, they might have kind of special deals for you there. And generally they will cover at least the exam, which is important. But with vision insurance, I'm just a little bit more skeptical with that one, but you should still take a look at it.
Bridget: You can take a look at it, but if you don't get it, don't feel like you're probably doing anything wrong. It's kind of a toss-up I think often.
Matthew: Yeah.
Bridget: Life insurance.
Matthew: Yeah. So life insurance is through employers just very affordable generally, and they'll oftentimes offer something for free. So obviously you want to make sure that you are signed up for whatever that is. And then life insurance policies or plans through work are, again, generally lower costs as well.
So if you have a spouse, if you have children that may rely on your income, it's a good idea to think about increasing the amount of benefit you have there. Oftentimes they'll offer benefits it's kind of X times your salary. So one time, two times, three times, plus. And yeah, it's definitely important to be considering.
Bridget: Yeah. And when we're working with clients, we usually do an analysis to see how much life insurance they should have. And often we recommend additional in addition to what they have at work if they have dependent kids. Right? So that's the big “If?" But through work is a good baseline of a good place to get it. So the biggest issue is that if you leave the job, then you have to go get some new life insurance. That's not optimal, but I think it's a good part of the package…
Matthew: Yeah.
Bridget: …like an overall life insurance plan. What other options, what other things do we have as we're wrapping up?
Matthew: Yeah. So we've really touched on the bigger ones that are more common. There are some less common items that come up, such as maybe the Accidental Death and Dismemberment Insurance or Critical Illness Insurance, things like that. And with these types of policies, it's kind of hard to sell them.
Bridget: What happens…here's my take on them. The insurance industry packages together things that people are really afraid of, but that aren't really statistically, it works for them to be insuring them, so not that many people die from them. So...it effectively acts as a bonus if you die in an accident, you not only get the life insurance that you had, but also an extra bonus because you had an accident. But it's hard for us to recommend people paying for that coverage. If it was free, fine. Take it. But just regular life insurance should do the trick.
Matthew: Yeah. Exactly. The limitations on those policies are just rather large, so I'd rather bump up life insurance than buy more of this.
Bridget: It covers you for pretty much whatever reason you die. Except, for instance, suicide. Or if you die…if you know you have a medical condition and you buy life insurance right before you die, like that kind of thing. They'll exclude those. You have to be more careful then, but in general, for whatever reason that you die, they cover you.
Matthew: Yeah.
Bridget: Okay. On that note, I think it's time to wrap up again. I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice. And this is Matthew Barnard, and we're members of ACP, or the Alliance of Comprehensive Planners. If you like the way we think and talk about these topics, you might want to check out ACP or acplanners.org, and you can find planners throughout the country that are in this non-for-profit group of people that kind of think the same way, and look for one of those if you're looking for more advice.
Matthew: Yeah. And if you found this information helpful, please "like" and "subscribe." Thanks so much for joining us.
At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.