It’s getting to be that time of year. If you haven’t already, you should soon receive your 2019 employee benefit options from your employer. These options typically include selecting a health insurance plan, dental, and vision coverage. Your employer may also provide for things such as life insurance, disability insurance, and/or a flexible spending account (FSA). Because you have to wait a full year before you can change your mind, it’s important to take care with your elections.
Life insurance – Employers often provide some sort of basic insurance coverage. This could be $50,000 or some multiple of your salary. They may also provide optional coverage that comes at your expense.
Optional group life insurance is usually some sort of term insurance that provides a death benefit to your elected beneficiary while you’re employed. This coverage will likely come in amounts that are multiples of your salary. The coverage typically ends when you leave your employer or retire.
Because this is group insurance, the insurance company provides coverage at a blanket cost based on age, not health. Due to this, the insurance may come at a cost that is higher for healthy individuals and cheaper for smokers or people with health issues. You may also find that your premium goes up in bands (meaning that it increases as you reach ages such as 35, 40, 45, 50, etc.).
Having some sort of life insurance is important for most people. After you determine the correct amount of coverage to purchase, you may want to weigh the costs of purchasing insurance on your own versus having coverage through your employer. Again, this is because the coverage may increase in cost every five years and that it may end after you leave your company’s employment.
Disability insurance – Your employer may also offer disability insurance. If they do, you may find that they provide a short-term plan for you. That plan may cover you should you become sick or disabled for a period of time that exceeds your personal leave. The plan often starts to pay some percentage (likely 60% or so) of your salary for 90 to 180 days. Because your employer is paying for this coverage, it will be taxed to you as ordinary income.
Your employer may also offer the option of purchasing long-term disability insurance. This would provide coverage after the short-term period ends though age 65 at a rate of somewhere around 60% of your current pay. You may be provided with the option to pay for your premium pretax or after tax. If you elect to pay pretax, you will get a tax break on the premium payments but pay income taxes on any benefits you receive. If you elect to pay your premiums with after-tax dollars and you are paying the full amount (not employer subsidized), you will likely receive benefits free of income taxes. If you have the choice, consider if you’d rather get a tax break on the small premium or the much larger insurance benefit should you become disabled.
Disability coverage is important to have-especially if you are single or the primary bread winner in your family. Disability insurance offered through your employer is also often inexpensive. Because of this, I generally recommend that my clients opt for the maximum disability benefit that they can receive through their employer.
Flexible Spending Account – FSA accounts are accounts where you can take pre-tax dollars from your pay and your employer puts them into a holding bucket. When you encounter a medical expense that is not covered by your insurance company, you can submit a claim to your employer and they will issue you a check.
The FSA should reimburse you for dental expenses, vision expenses, insurance deductibles and co-pays, as well as purchases for over-the-counter medications. You are only limited in reimbursements up to the amount that you contribute to the FSA for the year.
Just as is the case with your other benefits, you cannot change your FSA deduction after you elect it. If you decide to have $1,200 deducted from your pay for the year, your employer will take $100 per month from you pay and place that into the FSA. Later in the year, if you decide that the $100 a month is not enough or is too much, you cannot change your mind.
The other drawback to the FSA is that if you do not spend your full deduction for the year, you lose it. That means if you deducted $1,200 from your pay, but only used $500, the other $700 is lost. Again, make sure that you make the proper election because you cannot change the amount later and could lose a portion of your savings.
The good news is that the full amount you elect to deduct is available to you starting in January. For example, if you opt to deduct $1,200 for the year and you have a $1,200 or greater medical expense in February, you should be able to be reimbursed for the full amount right away.
Contact us to help assess your insurance needs and to help review your options. You want to make sure you have the coverage you need; but you also want to make sure you don’t have too much coverage, that you’re not paying too much for it, and that you have the right type of coverage for your situation. We’re happy to discuss your options with you and your benefits department.
This column is for informational purposes only, and is not meant as specific advice to any individual. Partnership Wealth Management offers financial planning and wealth management services, with a long history of working with the LGBT community. Reach them at Partnershipwm.com or call 410-732-2633.
- Throughout my nearly 20 years as a Financial Advisor, I have seen some of the best and worst markets in our history. That experience allows me to approach my clients with the knowledge of how the markets fit into their greater financial picture. At Partnership Wealth Management we help everyday people who have accumulated wealth make sense of what they have and work with them to maximize their financial opportunities in a relaxed, comfortable, and professional environment. While we help people from all walks of life, many of our clients are same-sex couples searching for a knowledgeable, LGBT-friendly financial advisor to help them with their unique financial planning needs. I am a CERTIFIED FINANCIAL PLANNER™ professional and have the Accredited Domestic Partnership Advisor(sm) designation. As a Registered Investment Advisor, we are not tied to any company’s investment products allowing us to provide unbiased advice by offering a wide array of investments and other products to our clients. Since 2001, I have been writing articles on financial planning for several regional newspapers and have been a guest speaker on LGBT financial issues for various local and national organizations. Additionally, I have conducted financial planning workshops for large corporations and government agencies. Non-Profit Work I believe that it is important to give back to the community and currently serve as the treasurer for FreeState Justice and as a co-founder/president of Paws for a Cause. I’m a current member of several LBGT, environmental, and local community groups. Personal My wife, Heidi and I enjoy camping, hiking, and traveling with our daughter, Elise, and our dogs, Fenway & Roxy. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.