By Steve Doster
Open enrollment for employee benefits is happening right now at most companies. Before tossing aside the large package of materials, take the time to understand and choose your employee benefits wisely. Many employers offer nice benefits that can save money and help protect your future. However, understanding all those options can be very confusing!
This benefit is hopefully something you get automatically at work. If not, go to www.CoveredCA.com to sign up for health insurance. Even perfectly healthy people can get sick, break an arm, or smash a finger. It’s a personal choice between selecting a PPO or a less expensive HMO plan. Regardless of which you choose, we generally recommend that you consider a high-deductible plan for employees. This will allow you to open a health savings account (HSA) where you can contribute pre-tax money to pay for medical expenses. For self-employed people, however, a low-deductible plan might be more beneficial because the premiums are 50% deductible above-the-line, which means you are not required to itemize deductions to get this health insurance premium deduction.
Most larger companies will match part or all your contribution to a retirement savings account like a 401(k), 403(b), or TSP. The most common employer match is a 50% match on the first 6% of wages you contribute. That is a 3% bonus every year — don’t pass up free money! Always contribute enough to get the full match.
Short-term disability insurance
Short-term disabilities are typically covered by sick pay or state disability programs. There is no need to buy additional coverage. It’s expensive and you should already have emergency cash set aside to cover three to six months of pay. Instead of getting this insurance, we recommend saving into an emergency fund.
Long-term disability insurance
You need this coverage! It protects future earnings if you become disabled for more than six months. A policy through work is usually cheaper than getting an individual policy. If you are self-employed, look for a large professional organization that offers long-term disability coverage as a membership benefit. For example, a financial planner can join the National Association of Personal Financial Advisors and get long-term disability insurance through the organization. Almost every occupation has a national association and many of these organizations offer long-term disability insurance at affordable rates.
Many large employers offer some free life insurance as a benefit. Typically, the benefit is one or two times your salary. In general, you don’t need life insurance if you don’t have dependents, but if it’s free through your employer, take it. There might also be an option to get additional coverage for a monthly cost. This can be a great option if you need the insurance. However, you might want to consider an individual term life policy to ensure you have coverage if you change jobs.
Legal insurance isn’t offered everywhere. If your employer offers it, consider signing up if you don’t have your estate documents. You’ll save several hundred dollars on estate documents by using a group legal benefit.
Dependent care flex spending account
Use this account to pay for child care costs (or any dependent) using pre-tax money. It will save you money if you understand the rules. Be careful of the “use-it-or-lose-it” provisions. The account needs to be fully spent each year – otherwise you forfeit any unused balance.
These are the primary employee benefits offered by most companies. You can download our employee benefits guide on our blog (website is below) to get more detailed information on your employee benefits. Set aside a couple of hours to really understand your employee benefits to take full advantage of what your employer offers.
— Steve Doster, CFP is the financial planning manager at Rowling & Associates – a fee-only wealth management and CPA firm helping individuals create a worry-free financial life. Rowling & Associates works to a fiduciary standard of care helping people with their taxes, investments, and financial planning. Read more articles at www.rowling.com/blog.