What do I need to do during open enrollment?
It’s fall. In Michigan, that means getting ready for snow and the impending cold weather. It also is my favorite time of year. While I miss sitting outside as much as in the spring and summer, I really love the cooler weather and you can’t deny the beauty of the leaves changing.
It also means open enrollment season for many employers. What’s open enrollment you ask? It’s the time of year when you are able to make changes to your benefits at work. It allows you to enroll, unenroll, or alter the selections you’ve made to benefits.
I think it’s really worth your time to review your employer offered benefits annually for a few reasons. First, goals change over time, so it’s best to make sure your coverages are in line with your current goals. Second, benefits and pricing may change year to year, so a different coverage may be available that wasn’t in the past that. Third, you may have missed signing up for a benefit that you want or are interested in that you weren’t before.
The point is, you may not make any changes, but just like your investments and financial plan, it’s good to regularly review these benefits and choose what’s most appropriate for you based on where you are and where you want to go.
If you’re not sure what’s best, consult your financial advisor, insurance professional, HR department, or even a trusted third party that can give an opinion. I offer to help with benefits with all my clients.
Let’s do it.
You may not think of open enrollment as a financial decision making time, but it can be if that’s where your insurances come from. Insurances are one of the base building blocks of strong financial planning and if you get benefits through your employer, it presents a huge opportunity. Chiefly because benefits offered through your employer will most likely be the lowest cost benefits available to you. That means, the more benefits your employer offers, the more importance this has for you and vice versa. If your employer offers no benefits, well you can most likely ignore all of this.
Additionally, if you are a small business owner who doesn’t offer insurance because of the small size, but you’re part of trade or professional organizations, you may be able to get group benefits through those resources. For example, I know attorneys have access to group disability coverage through some associations. As a financial professional, I can get group disability through the FSI. This may take some time to research, but the cost savings is staggering.
What to do?
Review all options available, know what options are available, understand them, and make decisions about what benefits you want, then lastly about the amounts of coverage you want. Your employer may offer more coverage than you’re seeking and you don’t need the maximum benefit or they may not offer enough benefits and you need to pursue additional coverage elsewhere.
Pros and Cons
The biggest benefits to group benefits are the cost and ease of use. For most coverages, there’s no underwriting or application process. It’s just checking the box on your HR forms and they withhold from your paycheck. The biggest downsides are lack of portability and limited coverage. Lack of portability means if you leave your employer, you probably can’t take the insurance with you. Sometimes they allow you to take it, but they will normally charge market rates for that, so the pricing will be a lot higher. Additionally, they may offer these benefits, but the coverages may not be what you want or need. If you don’t pursue other coverages, you may be underinsured. This is a situation where your circumstances will dictate and where it takes some time and analysis to decide what’s best for you and your loved ones.
If you work for a large company or public agency (state, federal, university, school, hospital) you probably have a lot of benefits available to you. Health Insurance, Life insurance, Disability insurance, retirement plan or plans possibly with match, Long Term Care insurance, Legal insurance, and many others.
If you have a financial plan, that’s great and that can help guide your decisions in utilizing or skipping many of these benefits. Here are some things to consider in which benefits to use or skip.
Health Insurance – I think there are two ways to approach this benefit. One is to decide what is most comfortable for you and your family. If you want the best coverage because it helps you sleep at night, go for it. If you think it’s a waste and you won’t use it, you could go for the cheapest. When making decisions about insurances, sometimes deciding based on it helping you sleep at night is the best approach.
The other way to approach this is to review your annual medical needs and insurance use, then make an informed calculation about the best policy. For example, let’s assume you use a lot of medical care throughout the year, see a lot of specialists, or have health issues. In that case, a more expensive policy will probably be more cost effective for you. These policies will cost more monthly, but will typically have lower out of pocket maximums, lower co pays, and allow you to access more services. So, if you go to the doctor several times each month, you would pay a lot early, but after you start hitting maximums your total spend will flatten. You’ll be paying more monthly still, but if you compare total spend for the calendar year, may cost less. The best way to do this is make some assumptions and do a detailed break even calculation.
Life Insurance – some employers offer group life insurance. Depending on the company, they may offer a benefit offered to everyone and they may have additional insurances for executives of highly compensated employees. Generally, employer based group life insurance will be the cheapest life insurance you can get. So, if you need life insurance and your employer offers it, it can make a lot of sense to take advantage of.
How much life insurance should I buy? The need for life insurance will depend on your goals, family, and lifestyle. There’s no one size fits all use for life insurance. There are rules of thumb to calculate this, you can do a myriad of income replacement calculations or look at a fixed dollar amount (like mortgage pay off, college tuition, or other dollar amount that feels right), but the best way to calculate this is to have a financial plan.
Disability Insurance – disability is a commonly underutilized and under appreciated benefit. If your employer offers this, I can’t encourage you strongly enough to look into it. This is insurance that would replace a portion of your income if you become ill and unable to work. Typically, employer provided coverage is pretty cheap.
Most employers today offer some sort of tax favored savings. Whether you participate again is up to you, but if your employer offers a match, pay more attention because that is basically free money they are offering for you to save some. It’s a double benefit because it’s a way of incentivizing you to save by giving you money to do it. It makes your compensation package worth more and increases the growth in your account by your employer adding.
What’s the appropriate amount to save? It’s impossible to say without running a financial planning calculation. If your employer offers a match though, it’s probably wise to save at least enough to take advantage of that.
This benefit is a personal one. Typically, I recommend using this if you know you’ll have legal costs occurring the next year. If you’re working a financial plan, you can forecast some of these. For example, if you’re getting married, you can plan for a prenuptial agreement. If you’ve decided a professionally prepared estate plan is right for you, you can use the insurance for that. Sometimes, the legal insurance won’t cover all of what you want, especially with complicated estate plans, but it will help to offset the costs more than the premiums paid.
Every employer offers different benefits and electing which of these to use or not are largely individual decisions on what’s most appropriate for you. I recommend you spend some time before open enrollment, review the benefits offered by your employer, and make informed decisions about what coverages are best for you and your family. If you’re unsure, consult a professional, make a financial plan, talk with your HR department or a confidant about what’s best for you. It will depend on your goals, health, wants, needs, and budget.
If you’d like help with choosing what benefits are right for you during open enrollment, to discuss your financial situation or create a financial plan, Telos Financial would be glad to talk with you. Contact us today to schedule an introductory meeting. Telos is a fee based, holistic financial planning firm serving Michigan’s high income and high net worth professionals, millennials, recent college graduates, and small business owners.
Thanks for reading the latest edition of Planning for your Purpose, Telos Financial’s blog, where I discuss different topics related to financial planning. CERTIFIED FINANCIAL PLANNER™ professional Dennis LaVoy is Plymouth, Michigan’s holistic financial advisor serving clients throughout the mitten as well as across the country.
The primary purpose of the blog is to introduce financial planning concepts and questions I receive from clients that I believe are important. I want to start discussions that will educate, benefit, and improve your financial life, ultimately, to help you focus on your telos!
Telos Financial is located in Plymouth, Michigan and focuses on serving young professionals and their families. Dennis LaVoy is a Certified Financial Planner® Designee and a Chartered Life Underwriter®. Dennis founded Telos Financial and to provide fiduciary financial services to families across Michigan including Plymouth, Canton, Ann Arbor, Detroit, and as well as all over the great United States of America.