Optimizing Your Insurance Benefits
Posted: Bradley Hlavinka
As seen in the Fort Bend CEO magazine
Determining which benefits to select based on you and your family’s needs can be a daunting annual task. Below, we provide some clarity and advice for the most common benefit options that you will typically face.
Life and AD&D Insurance
Often, a base-level life insurance policy is offered and paid for by your employer. However, you may have the option to purchase supplemental life insurance for you and your spouse. This option should not be overlooked, as this coverage is often less expensive and easier to obtain as opposed to applying for individual life insurance policies – you often can obtain coverage without any underwriting requirements. Supplemental life coverage is not always less expensive as its depends on your age and health – your advisor can assist you in determining if supplemental life coverage is optimal for you.
Regarding accidental death & dismemberment (AD&D) coverage, this is usually very inexpensive; however, it rarely pays out due to its very narrow coverage definition. We typically don’t recommend that you purchase it.
Disability insurance is very important to have and must not be overlooked, especially if you have many working years left before retiring. Typically, a long-term disability (LTD) policy will replace 60 to 66.66 percent of your income upon disability until you reach age 65. However, LTD insurance benefits do not normally start until you are on disability for at least 90 to 180 days, depending on the policy.
Short-term disability (STD) insurance is designed to bridge the gap between the disabling event and when long-term disability kicks in. It provides only partial income replacement for a short period of time. If you do not have at least three months’ worth of expenses in savings, then you should consider purchasing STD insurance to replace that income. However, if you already have adequate savings, we do not recommend that you purchase STD insurance.
Please note that if you have the option to choose how to pay your disability insurance premiums, elect to pay them on an after-tax basis, which will allow you to receive tax-free disability income if you need to file a claim.
As you choose your health insurance plan annually, it is important to consider all the options. Typically, you will have a choice between a more expensive health plan with lower deductibles and/or co-insurance and a less expensive health plan with higher deductibles and/or co-insurance. Based on the needs of you and your family, the optimal choice will vary. Additionally, if both spouses work and have access to employer-provided health coverage, you should evaluate all options to determine how best to include your dependents.
If a plan includes a health savings account (HSA) account, you should strongly consider it, especially if you currently use your health insurance only occasionally. Unlike a flexible spending account (FSA) plan, an HSA plan is tied to you, not your health insurance. This means that there is not a time sensitive “use it or lose it” rule in place. Additionally, you have the ability to keep and use your HSA funds for retirement healthcare expenses. Furthermore, an HSA is triple-tax advantaged, meaning your annual contributions are tax-deductible, the funds grow tax-free and are also withdrawn tax-free for qualified medical expenses.
For 2020, an individual will be able to contribute up to $3,550 and a family will be able to contribute up to $7,100 into an HSA. Additionally, if you are age 55 or older, you can contribute an additional $1,000 annually to your HSA.
As you navigate the annual process of selecting your employee benefits, please feel free to reach out to us as we can assist you with optimizing your benefits.
WJ Interests, LLC has provided fee-only financial advice to individuals, families and businesses since 1996. For more information, please contact us at email@example.com or 281-634-9400