Thursday, November 5, 2009
Get Ready For Open Season - Part 3
Tip # 205 - Get Ready For Open Season – Part 3. In this series we are discussing getting prepared for the open season enrollment that usually occur in places of employment this time of year. In Part 1 of this series, we discussed health care options, and in Part 2 we discussed the 401(k). In this last part of the series we will discuss other insurance options you may have such as life insurance, disability insurance, or a FLEX plan.
Some companies provide a certain level of life insurance to their employees – oftentimes it’s twice the salary they are making. If you are single with no dependents, that is probably enough life insurance to carry. On the other hand, if you have a family dependent on you and you lose your life, then twice your salary is likely not enough to take care of your family if you should die. Now the question becomes, do you buy the insurance through your company at open season or do you buy a policy on your own? I think a lot depends on how long you hope to stay at your job. If you buy insurance through them and then leave in five years, you will need to pick up life insurance on your own, if you still wish to carry it. The older you are, the more expensive it is, and the harder it may be to obtain. If that’s the case, it may be more beneficial to you to buy a term policy on your own and not buy any extra through your company. On the other hand, if you plan to stay at your company until you retire and you have no reason to think they will let you go, then buying life insurance through the company might be an option for you. But before you buy, make sure you shop around on your own; you may find that you can get a better or as good of a price on your own. If that’s the case, it’s probably better to buy a term policy on your own.
Disability insurance is another option that some companies offer during open enrollment. Again, they may carry a minimum amount for you as a standard benefit, and then give you the option to buy more if you wish. Like life insurance, this is a personal decision that you have to evaluate whether it’s worth getting or not. Insurance is often described by people as a “necessary evil.” No one wants to buy it, but if something happens to you, then you are glad you have it. Each person has to do what he feels comfortable with. Obviously insurance companies make money off policyholders, and they use actuarial tables to figure out how much to charge based on the likelihood of something happening to you. In other words, the company is betting that something won’t happen to you, while the person is buying insurance is betting that something will. If you like to cover all bases, then the disability insurance might be something you want. If you feel you will be able to work no matter what happens, then don’t buy it. If you decide that you do want extra disability insurance, then again shop around before you buy through your company.
A company may also offer what is known as a FLEX plan, which is basically a plan that allows you to set aside money in advance to pay for most medical expenses or dependent coverage you incur throughout the upcoming year without paying taxes on it. The difficult thing to decide is how much you want to set aside for this plan. If you set aside too much, you lose what you don't use. If you set aside too little, then you are not taking full advantage of it. These are good plans, in general, to be a part of if you are not getting a tax break on these expenses elsewhere. And there is usually no cost to belong, other than the money you are setting aside in advance for these expenses.
In general, when open enrollment starts, make sure you study your choices carefully. Talk to others within your company to hear experiences they have had with some of the companies and types of benefits offered. Look at your budget and figure out what will and won’t fit into it. And finally, shop around outside your company. Just because your employer offers you something, doesn’t mean it will be the best deal. Whatever you do, don’t wait until the due date to decide what you want. Take time to select your options.
In Real Life (IRL) – As I mentioned many times before, my husband’s company got taken over in April. And at that time, we were presented with a whole bunch of benefits that they offered – most of them for a price. It was much more than what his old company offered, so it took a lot more work on our part to make our decisions. There were various levels of heath insurance – regular and expanded benefits, as well as optional dental benefits – regular and expanded. Ugh, how could we predict whether one of us will need a root canal in the next year? And if so, would our costs be greater than the monthly premiums?
Then we had the additional options of disability insurance and extra life insurance. After evaluating everything, and knowing our selections were only for three-fourths of the year, we declined both. On the other hand, it made us realize that we needed extra life insurance. But when we compared prices on our own to what the company offered, there wasn’t much of a difference. So we ended up getting some term policies with an outside company, And this way if my husband leaves or is let go of his job, we don’t have to worry about applying for life insurance again. And although we declined the disability insurance, we are going to reevaluate it again this open enrollment. My brother-in-law recently had to utilize his disability insurance when a car accident left him unable to do his job. While I am not one to buy insurance to cover every potential problem down the road, it is something we are going to seriously consider. We haven’t decided yet whether or not we will buy it.
We have taken advantage of the FLEX plan for medical expenses. It was hard to guess how much we would use for 9 months out of the year. But now that we've had some experience with it, we are hoping we can make a better estimate in this enrollment season. We are taking the next few weeks to do research on all of our open enrollment options so we can hopefully make the best decision for our family this season. I hope you will do the same. For other ideas on being smart with your money, check out Frugal Fridays.