It’s getting to be that time of year. If you haven’t already, you should soon receive your 2014 employee benefit options from your employer. These options typically include selecting a health insurance plan, dental, and vision coverage. Your employer may also provide for things such as life insurance, disability insurance, and/or a flexible spending account (FSA). Because you have to wait a full year before you can change your mind, it’s important to take care with your elections.
Employers often provide some sort of basic insurance coverage. This could be $50,000 or some multiple of your salary. They may also provide optional coverage that comes at your expense.
Optional group life insurance is usually some sort of term insurance that provides a death benefit to your elected beneficiary while you’re employed. This coverage will likely come in amounts that are multiples of your salary. The coverage typically ends when you leave your employer or retire.
Because this is group insurance, the insurance company provides coverage at a blanket cost based on age, not health. Due to this, the insurance may come at a cost that is higher for healthy individuals and cheaper for smokers or people with health issues. You may also find that your premium goes up in bands (meaning that it increases as you reach ages such as 35, 40, 45, 50, etc).
Having some sort of life insurance is important for most people. After you determine the correct amount of coverage to purchase, you may want to weigh the costs of purchasing insurance on your own versus having coverage through your employer. Again, this is because the coverage may increase in cost every five years and that it may end after you leave your company’s employment.
Your employer may also offer disability insurance. If they do, you may find that they provide a short-term plan for you. That plan may cover you should you become sick or disabled for a period of time that exceeds your personal leave. The plan often starts to pay some percentage (likely 60% or so) of your salary for 90 to 180 days. Because your employer is paying for this coverage, it will be taxed to you as ordinary income.
Your employer may also offer the option of purchasing long-term disability insurance. This would provide coverage after the short-term period ends though age 65 at a rate of somewhere around 60% of your current pay. You may be provided with the option to pay for your premium pre tax or after tax. If you elect to pay pre tax, you will get a tax break on the premium payments, but pay income taxes on any benefits you receive. If you elect to pay your premiums with after-tax dollars and you are paying the full amount (not employer subsidized), you will likely receive benefits free of income taxes.
Disability coverage is important to have-especially if you are single or the primary bread winner in your family. Disability insurance offered through your employer is also often inexpensive. Because of this, I generally recommend that my clients opt for the maximum disability benefit that they can receive through their employer.
Flexible Spending Account (FSA)
FSA accounts are accounts where you can take pre-tax dollars from your pay and your employer puts them into a holding bucket. When you encounter a medical expense that is not covered by your insurance company, you can submit a claim to your employer and they will issue you a check.
The FSA should reimburse you for dental expenses, vision expenses, insurance deductibles and co pays, as well as purchases for over-the-counter medications. You are only limited in reimbursements up to the amount that you contribute to the FSA for the year.
Just as is the case with your other benefits, you cannot change your FSA deduction after you elect it. If you decide to have $1,200 deducted from your pay for the year, your employer will take $100 per month from you pay and place that into the FSA. Later in the year, if you decide that the $100 a month is not enough or is too much, you cannot change your mind.
The other drawback to the FSA is that if you do not spend your full deduction for the year, you lose it. That means if you deducted $1,200 from your pay, but only used $500, the other $700 is forfeited to the FSA company. Again, make sure that you make the proper election because you cannot change the amount later and could lose a portion of your savings.
The good news is that the full amount you elect to deduct is available to you starting in January. For example, if you opt to deduct $1,200 for the year and you have a $1,200 or greater medical expense in February, you should be able to be reimbursed for the full amount right away.
Review your options with your human resources department, you financial advisor, and tax professional before finalizing your elections.
The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.
Out of the Office…
Woody will be out of the office from November 1st to the 8th and again on 22nd through the 25th. The office will be open those days. Any calls may be directed to Woody’s assistant, Donna.
Our office and the markets will be closed on November 28th for Thanksgiving. While we will also be closed on November 29th, the markets will be open. If you need anything, you may contact LPL Financial client service at 800-558-7567.
Just a reminder…
We are always accepting donations for the local animal shelters – toys, tennis balls, collars, leashes, food, cat litter, cardboard trays, office supplies, cleaning supplies, towels, mats, washcloths, etc. We will accept donations Monday-Friday between 9AM & 5PM.
On the Home Front
Heidi, Fenway, Roxy, and I would like to wish you a happy Thanksgiving. It’s one of my favorite holidays because it’s about time with family (and food) rather than gifts. It’s also a holiday that’s shared by all Americans. Enjoy your day with family and friends.