Don't Get Lost in Open Enrollment Season
It's here. The open enrollment season is upon us! Open enrollment began November 1 and will run until December 15, 2020. Although this year has been different than other years, you should look into all the benefits your employer has to offer before you start planning your Thanksgiving and Christmas shopping/festivities.
This upcoming year's employee benefits should be a bit different from last year. As COVID-19 raged through 2020 unexpectedly and drastically affected many businesses. There is also a rising cost as health care continues to keep getting expensive. Even if not much has changed in your 2020, highly doubtful, you should take a look at what your employer has to offer and maximize the best you can.
Here are some tips:
If you've had the same plan for years since you first enrolled in it back when you first started your job, you should still look over what other plans are made available. Significantly if things have changed within your life, such as getting married or if you had kids. Perhaps a plan can save you money if it makes sense based on you and your family's medical needs.
If you are a relatively healthy person that does not often go to the doctor, it may make sense to go from a traditional plan to a High Deductible Health Plan (HDHP). As the name refers to HDHP, this is a plan that you pay out of pocket before the insurance pay. Other financial vehicles can help pay for these out of pocket expenses that can help reduce your taxes – more on that later (see HSA below).
If you recently got married or are married, you should look into your spouse's available plans. It may make sense to switch if your spouse's employer offers better plans or the same plans but at a lower premium.
Dental plans are often overlooked because of the cheap monthly premiums, and your employer offers one plan, but sometimes it may make sense to look into it even if you are cavity-free. The reason? As we age, if you would have taken care of your teeth now, you can prevent large or unexpected dental bills during your later years or while in retirement.
The upside, many insurance plans include dental cleaning twice or even three times a year. Talk about making your smile look good!
Do you wear glasses or contacts like I do? Often staring at a computer screen for hours degrades our eyesight. Again, just like dental, this one is often overlooked because it is a low premium. If you wear glasses, then this is something not to overlook (pun intended). Usually, your employer only provides one plan but, look into that plan or shop around because plans now have different options that include glass frames or at a reduced rate. Other services may be included, such as special lenses for your frame or Lasik surgery at reduced prices.
If you were blessed with 20/20 vision, then you can forego coverage for this.
A few employers provide life insurance but don't expect to see a large insurance policy. Most employers only offer a portion of the salary that would be lost should something happen to you. Often, this may not provide enough coverage for you or your family, especially if you are a homeowner or have kids.
If you are scared about leaving your family unprepared and would like to supplement what your employer is offering, consider getting a policy from an independent provider. Consider a whole life policy as it generates cash value. This cash value you can dip into as a supplemental form of savings should things get complicated in the future. Think of it as owning a home. As your home's value increases, you can tap into the home's equity to get a loan from it – obviously, you still will need to pay it off. Also, there are no term limitations from these types of policies as it covers your life. Since it covers your life, it is more expensive, especially since it is building cash value.
If you feel that you temporarily need some insurance coverage, think about getting a term policy. Term is relatively cheaper than whole life. Term refers to the number of years you will pay into the policy and have coverage should something happen to you. Most term limitations are 20 years and 30 years. In contrast to whole life insurance, this only covers a certain amount of your life, and it does not build any cash value. If whole life is like owning a home, then term is like renting – meant to be temporary.
Let's not pretend that accidents or other things happen. You are not a superhero with superpowers, or maybe you are? Like with car insurance, things can happen when you are on the road and have no control. Disability insurance allows you to continue to earn income in the event if you become disabled.
This type of insurance does not cover your full compensation if you do become disabled. There are often caps involved. If you have a high salary, this may not fully protect you. Creating a budget to see the most necessary things you need to cover your lifestyle while not working will help you determine if the number will fall short. Suppose it does fall short, then perhaps getting a supplemental policy.
Long-Term Care Insurance
It is hard to imagine that we will remain young – even though we are living longer. Long-Term Care Insurance (LTC) covers a host of services that are not covered by health insurance, such as assistance to daily activities. Some daily activities include bathing, dressing getting in or out of bed, to name a few. It also covers costs from chronic medical conditions, a disability, or a disorder like Alzheimer's.
Is your employer offering coverage? Great, look into locking in the benefits if you are in your 50's. Group rates tend to be much lower than individual plans, and since you are still young and healthy, it may make sense. If you retire, as long as you keep paying the premiums, there's no problem with it lapsing. Are you thinking of retiring overseas? It may get tricky because LTC is usually an American insurance coverage; therefore, finding long-term care overseas may get complicated.
Flexible Spending Account
A Flexible Spending Account (FSA) is a savings account set up by your employer that allows you to lower your taxable income. It takes pre-tax dollars from your paycheck, set aside to pay for some medical expenses and dental costs. Some of the most common expenses are office visit co-payments, sunscreen, prescription drugs, and flu shots, to name a few. You are perhaps wondering, what else may an FSA pay? You can take a look here.
It would be best if you calculated your medical expenses and set aside this amount. You can contribute up to the 2021 limit of $2,750. There is a drawback to this type of account. If you do not use the money at the end of the year, it is lost. There is an exception: some employers allow up to $500 to carry over to next year. If you leave the company, the employer keeps the unused funds. Lastly, this account does not earn any interest.
The main upside for this account is the lowering of your taxable income.
Health Savings Account
Don't confuse FSA with a Health Savings Account (HSA). Even though they may look the same and often sound the same, they have fundamental differences. Just like an FSA, this account helps lower your taxable income by taking pre-tax dollars from your paycheck.
An HSA is generally attached to a High Deductible Health Plan (HDHP) to pay for medical expenses. Or you can open an HSA outside of what is offered by your employer. Often an HSA is not provided by employers, but as stated before, they are usually attached to HDHP.
Unlike an FSA, an HSA money can carry over to the next year. The account earns some interest, and the 2021 contribution limits for an individual $3,600, families $7,200, and individuals aged 55 and above have a catchup of $1,000.
Again, like an FSA, an HSA lowers your taxable income.
Life Planning Services
This benefit is the new kid on the block and is gaining a lot of popularity amongst employers. It will gain more traction now that COVID-19 continues to be amongst us. Some examples of the services provided are mental health, legal and other services that may be lower.
If you have been thinking about creating your will or other estate documents, consider the legal services provided at a low cost or even complimentary.
This benefit is to help you maintain a form of balance with your life. Some of the other services are financial planning and health programs.
Note that some of these low-cost or complimentary services may not meet up to your unique complexities if you have a complex situation. Again, you don't lose anything from having a conversation.
Employers provide a wide range of information that can seem like information overload. They have to offer you all this information, but it's not their duty to make sure the benefits you choose are consistent with your overall unique complexities and financial plan. Navigating through all of this can be overwhelming. Having a financial advisor helps you navigate the complexities of employee benefits within your comprehensive financial plan and can also be a resource to make you understand things in plain English.