It’s that time of year when your employer rolls out their 15 percent increase to your health insurance payment. That’s a bad joke, but most likely a true statement. It’s also the time to review all of your employee benefits and sign up for the options that you need. Here are my tips and things to consider when choosing your benefits this year.
Retirement savings plan
This could be a 401(k), 403(b), 457(b), or TSP depending on your employer. Regardless of what plan is offered, be sure to sign up and contribute enough to receive the full company match. Every company has a different formula for their matching contribution. A typical match is 50 cents for every dollar you contribute up to 6 percent of your salary.
Disability insurance
If you are working, then long-term disability insurance is a must-have. Very few people can afford early retirement, so don’t ignore this benefit just because you might be a few years away from retiring. Long-term disability typically covers 50-60 percent of your base pay. Get at least the minimum coverage and seriously consider paying for the maximum coverage. Short-term disability insurance is optional if you have a properly sized emergency fund (3-6 months of living expenses).
If you are self-employed or your employer doesn’t offer disability insurance, then get your own policy and pay the premiums with after-tax money. The benefits you receive will be tax-free if you pay the premiums with after-tax dollars.
Life insurance
Employers offer inexpensive group life insurance. However, premiums increase every five years. Over a 30-year period, you are better off to get your own term life policy outside of work. The premiums on a term life policy don’t increase. This results in lower premiums paid on a term policy over a 20-year or 30-year period. The one exception is if you have a pre-existing condition. This is when the employer group life insurance is the way to go.
Group legal
Most folks don’t need an attorney on retainer. My only suggestion here is to sign up for the group legal benefit if you need to get estate documents. Pay the $10 or so monthly cost for one year. Have an attorney create your estate documents, and then drop the group legal coverage next year. Voila, you just paid about $120 for estate documents that typically cost $1,500.
Health insurance
Compare the comprehensive health plan options with the high-deductible plan. This can be done by assuming you have a huge medical bill of say $500,000. Go through how much you would have to pay in premiums, deductibles, co-pays and really focus on the maximum out-of-pocket amount for each health plan. Now you can compare the various health plans. What you may discover is that a high-deductible health plan has less financial risk for you in the event of a major medical incident.
If you choose a high-deductible health plan, then you qualify to contribute to a Health Savings Account (HSA). You can make pre-tax contributions up to $3,250 for one or $6,450 per family for 2013. Folks 55+ can add another $1,000 catch-up contribution.
Those are my tips and thoughts on employee benefits. Take time to review your employer benefits this year and be smart about it.
Steve Doster is a Certified Financial Planner™ professional providing commission-free financial advice for do-it-yourself investors. You can reach Steve at Doster Financial Planning by phone 619-688-1192 or email steve@dosterfinancialplanning.com. You can also follow Steve on Facebook, Linked In, Twitter, or blog to get more personal finance advice and tips.
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