By Steve Doster | Mission Valley Money
With 2017 coming to a close, open enrollment is currently happening at most companies. Before tossing aside the large package of materials, take the time to understand and choose your employee benefits wisely. Many employers offer generous benefits that can save money and help protect your future.
Here are seven common employee benefits to consider for the new year.
Health insurance: Hopefully, you will get this benefit automatically. If not, visit CoveredCA.com to sign up for health insurance. Even perfectly healthy people can get sick, break an arm or smash a finger. It’s a personal choice between selecting a Preferred Provider Organization (PPO) or a less expensive Health Maintenance Organization (HMO) plan. Regardless of which you choose, consider a high-deductible plan. This will allow you to open a Health Savings Account where you can contribute pre-tax money to pay for medical expenses.
Retirement savings: Most larger companies will match part or all your contribution to a retirement savings account like a 401(k), 403(b) or Thrift Savings Plan (TSP). The most common employer match is a 50 percent match on the first 6 percent of wages you contribute. That is a 3 percent bonus every year. Don’t pass up free money! Always contribute at least as much to get the full match from your employer savings plan – whether it’s a 401(k), 403(b) or TSP.
Short-term disability insurance: Short-term disabilities are typically covered by sick pay or state disability programs. There is no need to buy additional coverage. It is expensive and you should already have emergency cash set aside to cover three to six months of pay. Instead of getting this insurance, save what you would have paid in premiums into an emergency fund.
Long-term disability insurance: You need this coverage! Long-term disability insurance protects future earnings if you become disabled for more than six months. A policy through work is usually cheaper than getting an individual policy. If you are self-employed, look for a large, professional organization that offers long-term disability coverage as a membership benefit. For example, a financial planner can join the National Association of Personal Financial Advisors and get long-term disability insurance through the organization. Almost every occupation has a national association and many offer this coverage.
Life insurance: Many large employers offer some free life insurance as a benefit. Typically, the benefit is one or two times your salary. In general, you don’t need life insurance if you don’t have dependents. However, if it’s free through your employer, take it. Some employers also offer additional life insurance for a monthly premium. You might want to consider an individual term life policy to:
Have more predictable or affordable premiums. (Employer life insurance premiums increase every five years at ages 25, 30, 35, etc.)
Ensure you have coverage if you change jobs.
Group legal: Legal insurance isn’t offered everywhere. If your employer offers it, consider signing up if you haven’t done your estate documents. You’ll save several hundred dollars on estate documents while using a group legal benefit.
Dependent Care Flex Spending Account: Use this account to pay for child care costs (or any dependent) using pre-tax money. It will save you money if you understand the rules. Be careful of the “use-it-lose-it” provisions. The account needs to be fully spent each year – otherwise you forfeit any unused balance.
These are the primary benefits that most companies offer their employees. Be sure to sign up during the open enrollment period to be covered for 2018. You’ve earned it!
—Steve Doster, CFP, is the financial planning manager at Rowling & Associates, a fee-only wealth management firm in Mission Valley helping individuals create a worry-free financial life. Read more articles at rowling.com/blog.
