Dec 7, 2022
Recipe for insurance: Life, health and long-term disability
In the first article of our three-part series, we wrote about employer-sponsored retirement plans and what to consider as you head into your company’s open enrollment. I asked you to think about this in terms of “mise en place” (proactively laying out all the required ingredients and supplies) before making a complicated recipe. You want to do the research and analysis ahead of going into open enrollment, so don’t rush your decision and end up with a half-baked cake or, in this case, potentially lose out on the benefits offered to you.
In this article, we discuss the need for you to review the insurance coverage—life, health and disability—offered by your employer. Again, I suggest a measured approach to making these decisions. This is not a pinch of salt here, a sprinkle of sugar there. No, these decisions need to be thought about carefully and analyzed in advance of the deadline for open enrollment.
First, it’s important to review how much life insurance coverage you and your family need. There are quite a few variables that go into this equation, we think including your answers to the following five questions:
- What is your overall health?
- What expenses do you need to cover?
- Do you need to consider extra expenses like childcare and college?
- How much do you have saved?
- Is there another source of income for your family?
If you’re not certain how to go about analyzing your health insurance needs, please reach out to your wealth advisor to assist you with this analysis.
After you determine what your life insurance needs are, then consider the most effective way to cover those needs. It’s time to pull out the “secret ingredient,” as your employer plan may not be the best option for you. Depending on your age and health status, you may be able to purchase life insurance outside of your employer at a reduced rate.
As another benefit, this insurance is portable whether you continue to work with your employer or not.1 If you have health issues that prevent you from obtaining life insurance on the open market, or if your employer covers the cost of insurance, your employer-based plan may be the preferred option to cover your insurance needs.
Plans and coverage can change, premiums may increase and your specific needs may change as well. Depending on your health, medical prescriptions and family circumstances, you may wish to consider if changing plans makes sense for your situation. Take into account your monthly premiums, deductibles and out-of-pocket maximums when considering what health insurance to choose.
Long-term disability insurance
While many employees consider covering their income in case of an untimely death, many don’t consider what would happen if they became disabled and couldn’t work. Most employers will offer disability insurance to cover about 60% of wages.2
Some employers let you choose if you want to pay for your benefits with post-tax or pre-tax dollars. If you choose to pay on a pre-tax basis, your benefits will be taxed when you receive them. If you pay on a post-tax basis, the benefits you receive will be income-tax-free when you receive them.3 Again, it’s time to crunch some numbers to decide which path to choose (i.e., to pay for the benefit with pre- or post-tax dollars) and to determine whether what your employer offers is enough to cover your disability insurance needs.
The decisions you make during the open enrollment period may impact your long-term wealth. This article is the second in a three-part series on open enrollment. Click the links below to read the other two articles:
Part 1: “Mise En Place” and Open Enrollment
Part 3: Picking Your Side Dishes This Open Enrollment
ABOUT THE AUTHOR
Abigail Rosen, MS Financial Planning
Abigail (Abby) Rosen is a CERTIFIED FINANCIAL PLANNER professional with over 17 years of experience in the financial industry. Prior to her career in finance, Abby was an officer in the United States Navy. Abby is responsible for managing client relationships and coordinating all aspects of client service for the team. Abby specializes in working with corporate executives to help them take full advantage of their available benefits, implement in respect to employer stock concentrations and manage their stock option strategies. She has a designation in Global Financial Planning.
She graduated with a Bachelors of Arts from the College of the Holy Cross, and received a Master of Science (distinction) in Financial Planning from Bentley University. She was 2020 Citizen of the Year for her work as Treasurer of the New Jersey Psychological Association, Foundation, is Treasurer of the Harding Township Educational Foundation (HTEF) and a Girl Scout Troop Leader.
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