4 Key Steps to Reviewing Your Company’s Insurance Options
By: Stacey Nickens
How much money can you save in an hour? If you spend an hour cooking instead of going out to eat, you could save $100 or more. Spending an hour on the treadmill could save you on health costs down the line. Spending an hour cleaning your car could help you save on car maintenance costs. Similarly, spending one hour to review your company’s benefits options could save you hundreds of dollars in insurance costs. Not only that, but taking this time could ensure you and your family are protected in the event of a disability or death. Such protection could be worth thousands of dollars. With that in mind, I encourage you to take one hour this month, pull up your company’s benefits plan, and follow these four steps.
Step 1: Pick the Right Health Plan for You
Companies often offer a Health Maintenance Organization (HMO) plan, a Preferred Provider Organization (PPO) plan, and/or a High Deductible Health Plan (HDHP). Depending on your needs and preferences, one type of plan may be a better fit for you and your family.
Those who are comfortable trading flexibility for lower costs might consider a Health Maintenance Organization (HMO) plan. HMOs consist of a group of medical providers who contract to provide healthcare. HMOs tend to focus on preventative care in order to reduce premiums and out-of-pocket expenses. HMOs accordingly have you work with a primary doctor to coordinate all of your care, except in the case of an emergency. This means you would have less flexibility in coordinating your care and would need to seek a referral for all specialists.
Those who desire more flexibility in exchange for potentially higher out-of-pocket costs might consider a Preferred Provider Organization (PPO) plan. A PPO is a group of medical providers who work with an insurance company to offer discounted services. You have more freedom with a PPO and don’t need a referral to see a specialist. However, out-of-pocket costs will likely be higher than with an HMO plan.
Finally, those with few current health needs who want to increase their savings might look into a High Deductible Health Plan (HDHP). High deductible plans offer lower premiums, allowing the insured to save on monthly health insurance costs. These savings could be reinvested in an HSA, where the money could grow tax-free and be withdrawn tax-free for eligible medical expenses. HSA contributions are also tax deductible. An HDHP has high deductibles, as suggested by its name, meaning the insured may face significant expenses in the event of a health problem. However, the insured could then use their HSA to help cover these expenses.
Step 2: Enroll in Disability Insurance
Preparing for the worst-case scenario is a key part of financial planning. Car accidents and other disabling events happen regularly, and you want to ensure you and your family are protected if this were to happen.
Disability insurance provides for a percentage of your salary in the event that you cannot work due to illness or injury. A standard disability insurance policy would pay out 60% of your base salary, up to a cap, such as $10,000 per month. These policies don’t necessarily account for bonuses, commissions, or incentive pay.
During this benefits season, review your company’s disability insurance options. Many employers provide a group employee benefit without you needing to pay or do anything. Review how much your benefit would cover each month and if your cash savings could compensate for any extra financial needs. If not, you might want to purchase supplemental insurance through your employer or a private company. You may also look into short-term disability insurance that could cover you until a long-term policy kicks in.
If you have the ability to pay for your insurance premiums with after-tax dollars, you would receive your benefit tax-free. If your employer pays your premiums and you do not pay taxes on those premiums, you would be taxed on your insurance benefit.
Step 3: Calculate Your Life Insurance Needs
Your employer likely offers life insurance coverage, but is it enough? Many employers offer a group benefit equal to 1x to 3x your salary. However, those with children and/or a mortgage may have higher life insurance needs. A rule of thumb dictates getting coverage for 10x to 12x your earnings.
With that in mind, you may consider buying additional insurance through your employer or through a private insurer. Those with current health needs may need to buy through their employer. However, others may find that private insurers offer lower-cost plans that have more portability.
Step 4: Review Your Extra Benefits
More and more employers are offering supplemental benefits. These benefits could include a financial wellness program. counseling, vacation buy-up plans, dependent care and Flexible Spending Accounts (FSAs), or tuition reimbursement. Whatever these benefits may be, take a few minutes to understand your coverage. You may be able to take advantage of additional savings opportunities.