Dealing with company buyouts – Part 5: Insurance

PART 5: Insurance planning

Mergers and acquisitions are a common business strategy and often result in a realignment of talent among mid- and upper-tier executives. Many jobs are eliminated, and severance packages are offered. If your company has recently been acquired or will merge with another company, it’s wise to consider taking immediate action to preserve the compensation you have earned. In addition, it makes sense to develop a strategy designed to strengthen your financial future.

In our six-part series on the potential impact of a company buyout, we’ll discuss several important issues related to your finances.

In this article, we run through some strategies related to insurance planning.

Maintaining your insurance coverage

As a fee-only firm, we don’t sell insurance products. However, insurance planning is an important component of our clients’ overall financial strategies. Since we believe in the benefits of holistic planning, we’re happy to share our insights regarding insurance, giving our clients some things to consider and discuss with their insurance professional. Over the years, we have found that many individuals working in corporate America hold the bulk of their health, life and disability insurance coverage through their group plans. If you’re staying on with the new firm, don’t be surprised if you have a whole new set of benefit plans available to you, so you’ll be starting from scratch to make sure you hold the right amount and types of insurance coverage.

If you leave your company, your benefits will change.

For our clients, we consider whether they are eligible for retiree medical coverage following their termination of employment. If they’re not, we will explore whether going on COBRA is the best short-term solution to maintain their group health benefits as they transition from their previous job. Quite often, we see severance packages contain provisions to cover COBRA premiums for a period of time. Researching individual or family medical health plans is usually wise to compare costs and coverages before COBRA ends, especially if you plan to continue working as an independent consultant or at a smaller-sized company where health plans may not be as comprehensive.

Some actions to consider

For life insurance, you need to evaluate how much coverage you should maintain and for how long and the cost to convert your group coverage to an individual policy versus getting a new policy elsewhere. It’s likely that you can continue some or all of your group life insurance after your separation date by converting the group policy to an individual permanent policy. The premiums on converted life insurance policies may be much higher than you’d pay in the marketplace to purchase a new policy, if you are healthy.

In general, we see having some of your life insurance coverage outside of your employer as beneficial should a major life event like a job elimination occur, as this is one less obstacle to face. Make sure your beneficiary designation is updated for any new life insurance policies you secure following termination, and if you do plan to apply for outside coverage, be sure you are insurable before canceling any existing coverage.

Your disability insurance typically ends once you’re no longer employed by your company. Individual coverage is typically expensive and may be hard to qualify for, so if you need to keep working, finding a job with good benefits has its advantages.

If you hold funds in a Health Savings Account (HSA), this money is not forfeited, and you can keep the account intact. You may also roll it over to a different HSA in the future if that makes sense for your situation. Remember to name a beneficiary on your HSA account as well. And, for every year that you’re enrolled in a high-deductible medical plan, we recommend saving the maximum amount into the HSA, as this is a highly valuable tax strategy. The deposits are made on a pre-tax basis, the interest earned inside the account is not taxed, and withdrawals for qualified medical expenses come out tax-free.¹ It’s the triple play of taxation!

Insurance planning is another important element to consider if you leave your job, and it can become even more stressful if you’ve experienced any health issues in the recent past. This is an area we’re happy to help our clients navigate through, working closely with their insurance agent or one that we know and trust. CI Private Wealth has built strong relationships with independent health insurance consultants who help our clients make these important decisions.

We’re ready to support you

To make wise decisions when facing a corporate restructuring, we believe you need to understand all the aspects of how this significant change may impact your finances now and in the future. Our team has the experience and expertise to develop your personal strategy, helping you make appropriate moves regarding your separation or transition package and, more importantly, gain clear insights into the potential impact on your overall financial well-being.

Other topics in this series:

• Severance, deferred compensation, investments
• 401(k) and Supplemental 401(k)
• Stock options and restricted stock
• Pension plans
• Tax and estate planning

¹ https://www.healthcare.gov/glossary/health-savings-account-hsa/ 

ABOUT THE AUTHOR