Young family enjoying spending time together.
Open enrollment often involves many requirements outside of standard health insurance. In this article, I will review some common insurance policies (excluding health insurance) and the investment benefits that arise during open enrollment and how to consider each category.
Term life insurance
Term life insurance is designed to pay a tax-free death benefit to the beneficiary of your choice if you die while employed in your business. Often, a benefit up to a multiple of your salary may be available to you at no or low cost.
Many people request additional temporary insurance from their employer. Here are a few things to know about it:
- It is important to base your insurance coverage on insurable need. Examples of insurable needs include income replacement, debt repayment, burial expenses, and replenishment of household emergency funds. This is to ensure that the needs of your loved ones are met should something happen to you.
- Insurance is generally not transferable, 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 which can make it more expensive than if you had purchased private insurance on your own.
If you want to ensure that in the event of your death, your loved ones will be taken care of, regardless of where you are working at the time, you may consider hiring an insurance agent to complete the temporary insurance for your business with a personal life insurance policy.
Disability income insurance
Disability insurance ensures your ability to earn an income. If you become disabled, your insurance policy will pay you a portion of your earned income. Many employers offer coverage of up to 60% of your salary.
Most people don’t think about a potential disability until it happens, but the reality is: about 1 in 4 people will need disability income at some point during their career. It is important to understand your coverage to know whether or not benefits will be taxable, what qualifies for disability benefits, whether there is a period of time you must wait for benefits to be paid, how much to expect and for how long they will be paid to you. . During open enrollment, you may be able to change these factors or opt into coverage.
Accidental death and dismemberment insurance
Accidental death and dismemberment (AD&D) insurance is probably one of the cheapest insurance options you will see. The reason is that it is an extremely unlikely insurance policy to pay out. This insurance would reimburse you in full if you died while you were employed following an accident. Think: you’re walking down the street and a piano falls on your head, killing you instantly. An insurance policy would also pay you if you become completely blind, deaf or lose two limbs in an accident.
Let’s say you get into a car accident and end up in the hospital. You then have to stay in the hospital for several weeks to recover and, as a result, you contract pneumonia and die. Even if you die in an accident, this type of policy probably won’t pay off for you.
Basically, if you have this type of coverage and your insurable needs are high, try to make sure that it is not your only insurance policy, as it is very limited.
Money increases over time.
Retirement account
When evaluating your other benefits, you may choose to re-examine your employer-sponsored retirement plan, if you have one. Companies can offer a match of up to a certain percentage of employee contributions. An example would be a 3% match on contributions up to 3%. Since this is essentially free money, consider contributing to the match at a minimum.
I ask a lot of people how much they put into their retirement plan, and they’ll say they’re maxing it out if they contribute that amount. Usually, this isn’t quite the case.
Let’s say we have an investor named Paolo who is 45 years old and makes $75,000. This is what he could get with a 3% matching contribution in different types of plans:
These are the pension plan maximums for 2023.
Many people also wonder if it’s still worth contributing if there’s no match. If you’re planning to retire and will need income after age 59 1/2, there aren’t many investment vehicles outside of retirement plans that can provide you with this type of compound return over a long period.
Health Savings Accounts
Health savings accounts are available to people who opt for a high-deductible health insurance plan, and many allow you to invest after meeting certain minimums. It is one of the most tax-advantaged vehicles on the market, offering a tax deduction on contributions, tax-deferred growth, and tax-free distributions when used for qualified medical expenses. These accounts have relatively low maximum contributions compared to retirement investments, at $3,850 for individuals and $7,750 for family coverage.
Conclusion
Choosing between benefits can be a daunting task. This article outlines some considerations and ways to prioritize company-sponsored term life insurance, disability insurance, AD&D insurance, retirement plans, and health savings accounts.
This informational and educational article does not offer or constitute, and should not be considered, tax or financial advice. Your unique needs, objectives and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will take precedence 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, endorse, or make any representations as to the accuracy, completeness, or suitability of any portion of any content linked to This item.
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 does business in California as Equitable Network Insurance Agency of California, LLC). Financial professionals may conduct business transactions and/or respond to inquiries only in states in which they are properly qualified. Any compensation Ms. Jones may receive for publication of this article is earned separately and entirely outside of her capacity from Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-5856981.1(10/23)(exp.10/25)