Fall is the time of year when many Americans are asked to make important decisions regarding their benefit plans for the upcoming year. Choosing a benefit plan is challenging from both a personal and financial perspective. On the one hand, it’s impossible to predict with any level of certainty which benefit plans you might need, but you also don’t want to shell out thousands of dollars for coverage that goes unused. Herein lies the challenge: weighing the risks and benefits of the options, then committing to the plan that fits best.
Are you ready to select your family’s 2021 benefits? How will you even know what to look for? Here are some tips that may help you decide.
- Don’t assume group benefits are attractively priced. Sometimes group discounts are significant, but other times you could be better served purchasing independent, portable policies that offer alternative benefits.
For those in good health, the level term life policy is a prime example. With this type of life insurance policy, premiums are guaranteed to stay the same while coverage increases. From a premium to benefit ratio, your upfront cost may be a bit higher than with an employer-sponsored life insurance policy, but the cost over time of group policies with premiums that increase every year or every 5 years could end up costing you much more over time.
Individuals with health problems may still be eligible, but will want to pay attention to time-sensitive entry points (like open enrollment or qualifying events) that allow coverage without providing evidence of insurability.
- Don’t neglect long-term disability insurance. The single most valuable asset you have in earning an income is your physical ability to do so. However, unexpected accidents or illness can quickly take that ability off the table. And despite popular opinion, the likelihood of needing long-term disability is quite high. According to the Social Security Administration, more than 25% of 20 year olds will experience a disability for 90 days or more before they reach age 67.
High-income earners face another unique problem: basic coverage benefits offered in group policies may only account for a low percentage of their usual take-home pay. If you are high earner, pay close attention to any caps on benefits and look for supplemental disability policies your employer may offer at an additional cost. Generally group LTD is significantly less expensive than any policy you might purchase outside of a group or association policy. But if all group coverage still leaves you with a significant gap in coverage vs. the income you and your family would need, your advisor can assist with exploring individual disability coverage.
- Avoid Accidental Death & Dismemberment (AD&D) policies. Don’t be fooled by the small price tag on accidental death policies; commonly, their cheap rates are reflective of their low likelihood of actually paying out in the event of death since the chance of an accidental death or dismemberment is actually quite low.. Instead, choose a reputable life insurance policy that will pay regardless of the circumstances.
- Assess when to buy a long-term care policy: Long-term care insurance can be well worth its weight in gold, but it isn’t always necessary to purchase early in life. Of course, the older you get, the higher premiums you can expect to pay and the higher the chance of health problems creating issues with qualifying. However, generally the “cost curve” doesn’t steepen significantly until an individual reaches the late 50’s or early 60’s. However, if you are concerned about a health issue potentially creating eligibility issues, you may want to consider purchasing an LTC policy sooner rather than later.
- Open a Health Savings Account (HSA) if a high-deductible health plan (HDHP) fits your profile. If you are healthy with a historically low usage of health care, consider opting into a high-deductible health plan and paring that with an HSA. If you are a low-user of health care benefits, a HDHP generally comes at a much lower premium than lower-deductible health care plans. The HSA then brings with it a “triple tax advantage, not only lowering your taxable income through tax deductible contributions, but allowing, tax-free growth and tax-free withdrawals for qualifying medical expenses. It’s easy to see why this past decade has seen an insurgence in HSA enrollment.
Making sure you are adequately covered to insure against disability and other financially devastating life events can get expensive, especially if improper products are purchased to do the job. As a high-earning executive, protecting your health and your income can be paramount to your family’s survival.
Fortunately, the advisors at Atlanta Financial are well-versed in the different risk management products available and can help you make some of these tough decisions.
Contact Atlanta Financial today to schedule a complimentary consultation and learn more about how our ExecFIT™ process can help put you and your finances on the right path.
Through our ExecFIT™ process, we work with executives to reach financial independence by helping them organize and gain clarity around their financial lives, then help them plan and make well-considered financial decisions to take them from where they are to where they want to be. A key component of our work at Atlanta Financial is designing retirement planning strategies that help maximize savings while minimizing taxes.