Young family enjoying spending time together.
Open enrollment often involves a lot of terms outside of the standard health insurance. Here are some other common insurance and investment benefits that come up during open enrollment and how to consider each category.
Term Life Insurance
Term life insurance is designed to pay a tax-free death benefit out to your chosen beneficiary if you die while employed at your company. Oftentimes, an amount of money up to some multiple of your salary may be available at no or low cost to you.
Many people ask about purchasing additional term insurance through their employer. Here are three things to know about this:
It’s important to base your insurance coverage on an insurable need. Examples of insurable needs include income replacement, debt repayment, burial expenses, and rebuilding household emergency funds. This is to make sure your loved ones have their needs met if something were to happen to you.
The insurance is usually not portable, meaning that if you go to another company, the death benefit amount will not follow you.
If the insurance is portable, it is usually offered at a default medical rate that may make it more expensive than if you had gone out on your own and bought private insurance.
If you want to ensure that if you die, your loved ones are taken care of regardless of where you work at the time, you may want to consider working with an agent to supplement your company term insurance with a personal life insurance policy.
Disability Income Insurance
Disability income insurance covers your ability to earn an income. If you happen to become disabled, your insurance policy will pay a portion of your earned income to you. Many employers offer coverage of up to 60% of your salary.
Most people do not think about a potential disability until it happens, but the reality is that about 1 in 4 people will need disability income at some point during their careers, per the Centers for Disease Control. It’s important to understand your coverage and find out:
If benefits will be taxable to you or not
What scenarios qualify for disability benefits
If there is a period where you must wait for benefits to pay
How much money to expect
How long the insurance would pay you
At open enrollment, you may be able to change these factors or opt into coverage.
Accidental Death And Dismemberment Insurance
Accidental Death and Dismemberment insurance (AD&D) is possibly one of the most inexpensive insurance options you may have access to. The reason for this is it’s an incredibly unlikely insurance policy to pay out benefits. This insurance would pay out in full if you died in an accident while employed. Say you were walking down the street and a piano drops on your head, causing you to die instantly. A policy would also pay out benefits if you became completely blind, deaf, or lost two of your limbs in an accident.
Let’s say you get in a car accident and end up in the hospital. You then must stay in the hospital for several weeks to recover and as a result, you contract pneumonia and die. Even though you passed away after having an accident, this type of policy would be unlikely to pay out any benefits.
Basically, if you have this type of coverage and a high insurable need, try to make sure this isn’t your only insurance policy since it is so limited.
Money growing over time.
When you assess your other benefits, you may choose to take a second look at your employer-sponsored retirement plan if you have one. Companies may offer a match up to a certain percentage of employee contributions. An example would be a 100% match on up to 3% of your salary. Since it is essentially free money, consider contributing up to the match at a bare minimum.
I ask a lot of people how much they put into their retirement plan, and hear responses that they are maxing it out if they’re contributing up to the match. Usually, that’s not quite the case.
Let’s say we have an investor who is 45 years old and makes $75,000. This is what they would be able to get with a 3% matching contribution in a few different types of retirement plans:
These are the 2023 retirement plan maximums.
A lot of people also ask if it’s still worth it to contribute to their retirement plan without an employer match. If you’re planning to retire and you will need an income stream after the age of 59 ½, there are not a lot of other investment vehicles that can give you this kind of compounding return over a long period of time.
Health Savings Accounts
Health Savings Accounts are available to individuals who opt for a high-deductible medical insurance plan, and many HSAs allow you to invest after hitting certain minimums. It is one of the most tax-advantaged vehicles out there, giving a tax deduction on contributions, tax-deferred growth, and tax-free distributions when used for qualified medical expenses. These accounts have relatively low maximum annual contributions compared with retirement investments. The limits are $3,850 for individuals and $7,750 for family coverage in 2023.
Choosing the right benefits can be a daunting task. But there are some considerations to know and ways to prioritize company-sponsored term life insurance, disability income insurance, AD&D insurance, retirement plans and health savings accounts.
This informational and educational article does not offer or constitute, and should not be relied upon, as tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article.
Cicely Jones (CA Insurance Lic. #:0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-5856981.1(10/23)(exp.10/25)
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