MAKE THE MOST OF YOUR SALARY IN YOUR NEW ROLE BY UNDERSTANDING HOW THE RIGHT FINANCIAL CHOICES CAN MAKE A DIFFERENCE IN YOUR FINANCIAL FUTURE.
Many parts of starting a new job can be exciting. Choosing your insurance? Not so much.
You may not want to hit the pause button on celebrating your new role so you can review your employer’s insurance options, but understanding guidelines should help make it easier to ask the right questions that will lead you to make sound insurance decisions.
Health Insurance, Healthcare, and Health Savings
With increasingly expensive premiums, co-pays, and out-of-pocket costs, healthcare is a significant financial concern for all Americans, not just retirees. Working with your employer to understand your health insurance options and picking the best health insurance for your physical and financial well-being can help mitigate immediate and long-term costs.
Is my employer’s health insurance the only option I should be considering? Is a Health Savings Account (HSA) worth it?
- While your employer’s health coverage may be the best option for you if you’re single, for those with a family, it may make more sense to buy separate coverage for the family on the individual market, especially if your family doesn’t have ongoing health problems or need to access services frequently.
- Your employer’s healthcare also may cover a spouse, but not a domestic partner. Make sure to understand who’s included under family options.
- Whether or not you stick solely with your employer’s coverage or purchase some family coverage on the individual market, the potential for high healthcare costs makes an HSA worth considering. Having insurance doesn’t necessarily protect you from catastrophic medical debt; In fact, 60% of Americans with medical debt have health insurance already1, and 2 million Americans currently report having filed for medical debt-related bankruptcy. By funding an HSA account, you may save taxes and set aside money that may be needed to cover large expenses, especially if you’ve picked a plan with a high deductible.
- Before setting up an HSA, however, check on the restrictions for your employer’s plan. While less common than it used to be, some accounts have a ‘use it or lose it’ rule that requires you to use up your total balance by the end of the calendar year, without rolling over any remaining balance into the new year. You also should confirm that you could still access or rollover the balance of your account if you leave your job and start with a different employer.
Premiums, Policies, and Networks, Oh My!
While you may easily understand co-pays, deductibles, and out-of-pocket expenses, healthcare networks can be more complex to compare. If two insurance policies look identical but have vastly different premiums, it may initially seem like an easy choice to just pick the one with the lower premium. If the two plans differ greatly in the available network of doctors and hospitals, however, this can eventually have a larger impact on your wallet. Cheaper policies may have narrow networks and not cover many physicians. If you need flexibility, choosing the bigger network may more than make up for the difference in premiums.
In addition to asking if a doctor is in network, make certain that testing facilities are also in network. If you end up actually needing medical attention in a facility, filing a written request “only use doctors and labs in my network” can end up saving you a lot of money. Out-of-network coverage can cost the full price for a service instead of the lower rate negotiated by the insurer.
Does your employer provide disability insurance, and what does it cover?
The moment you get injured and file a claim is not the first time you should be taking a close look at your employer’s disability insurance. When discussing your employer’s disability insurance with your benefits department, ask them the following questions:
- How long does their short-term sick leave last? It can vary from a few days to as long as six months.
- Are you covered starting day one, or do you need to wait before benefits begin?
- If you end up disabled, how long would payments last?
- Does your employer’s disability plan take other disability programs, such as Social Security, into account when calculating your disability pay?
What is long-term disability coverage, and how much does it cost?
- Typical group long-term disability (LTD) benefits replace approximately 60% of a worker’s usual salary, but this may vary. These benefits usually start when short-term benefits are exhausted and continue from five years to life.
- While employers are not legally required to provide LTD coverage, about half of large- and medium-sized employers do. Usually, group LTD insurance is fully paid for by employers, but when you receive employer-paid disability income, you must pay federal and state income tax on the benefits, unless your employer pays it for you.
- The cost of your LTD policy mainly depends on the benefit amount and length. Insurance costs also depend on your age, gender, smoking history, state of residence, benefit period, elimination period, and policy features. Additional riders can also impact the cost.
- When shopping for disability insurance, many workers use the rule of thumb that it should cost no more than 1% to 3% of your salary.
If your employer doesn’t offer LTD insurance or cover the whole cost of it, is it worth paying for?
If you become disabled for six months or more at some point during your career, LTD insurance reduces the risk of financial trouble, including potential bankruptcy. Here are some facts to consider:
- One in four American workers will become disabled before they retire2
- Payments from disability insurance are treated like regular income, and there are no restrictions on how you can use the money. You also don’t have to pay it back, and there are no interest or penalties on it.
- It’s tax efficient! Because you pay for premiums with after-tax dollars, the monthly benefit isn’t also taxed.
- You have to pay for it. Like any insurance policy, you don’t want to have to ever use it, but that also means you’ll have paid for insurance you didn’t use. You’re paying to reduce risk, not to cash in.
- The older you are, the more expensive and less comprehensive a new LTD’s coverage will be. The sooner in your career you purchase a policy, the less you’ll need to spend for coverage that may be more comprehensive.
- Certain risk factors, such as a high risk job or history of health problems, can make it more difficult to obtain a policy that offers both the price and coverage you prefer.
While the needs for an extended disability policy depend on each individual’s priorities and circumstances, you can work with a financial professional to make the best decision for you.
Insurance may not feel like an important part of your financial planning journey, but it can play a major role in shaping your financial future. A financial professional can work with you to make cost-efficient choices that may help you save money that you could invest in a retirement savings plan.