Open Enrollment, Part Two: How to Choose for Next Year
In part one of the Open Enrollment series, I discussed the three most valuable benefits offered by most companies: health insurance, Flex Spending Accounts (FSA), and Health Savings Accounts (HSA). In this article, I will discuss the other common benefits offered by employers:
- Dental insurance
- Vision insurance
- Life insurance
- Disability insurance
- Accidental death & dismemberment insurance
- Critical care insurance
- Prepaid legal services
Many Bay Area employers provide dental coverage for free. If you must pay for dental insurance, decide whether it’s better to save on the premiums and pay for basic preventive care out-of-pocket. Although I believe dental insurance is optional, health insurance as discussed in part one is NOT since there’s no ceiling on medical expenses. Major dental work, on the other hand, is far less expensive. The out of pocket cost for a San Francisco dentist to remove a wisdom tooth is $1,000, for example. In contrast, a heart transplant costs $1,000,000.
My dentist charges $110 for the cleaning, and $220 for an X-ray. But if you’re concerned about potentially expensive dental work like root canals and crowns, or simply want to avoid a surprise bill, pay for the dental insurance.
X-rays and dental cleanings are typically 100% covered, and all other services are covered up to a percentage (e.g., 90% coverage for a filling). You’d first have to meet deductible, which is usually low for dental insurance (e.g., $50). Check if you’re subject to a maximum annual benefit amount. If the maximum annual benefit is $2,000, for example, any dental work beyond this amount in that calendar year would be 100% your responsibility.
Vision coverage is another benefit that is often provided for free or at a low premium. If it’s not free, decide whether it’s better to save on the premiums and pay for basic preventive care out-of-pocket. My optometrist charges $85 for an eye exam, and $250 for a year’s supply of contact lenses (26 pairs, which I replace them every two weeks).
Life insurance: Group vs. Individual
Life insurance (and estate planning) is an important topic for all adults, particularly if you have a spouse, children, and/or other dependents like pets or parents who rely on you for financial support. Many employers offer life insurance as part of the benefits package (“group life insurance”). Alternatively, you can get a life insurance policy on your own.
Group life insurance
Your employer owns the group policy and offers coverage to eligible employees. Employers typically offer: (1) basic life insurance for free, and (2) optional supplemental life insurance, which you must elect and pay the premiums via paycheck deductions.
For the basic coverage, your company controls the benefit amount (e.g., $50,000, or 1x base salary), and they can change or terminate the coverage whenever they want.
For the optional supplemental life insurance, there typically is an amount available without proof of good health, or “evidence of insurability”, above which you must undergo a medical exam. Sometimes employers offer a limited window when you can elect the supplemental life insurance without evidence of insurability, often within 60 days of starting a new job. And if you elect supplemental coverage later, you must demonstrate evidence of insurability.
Group life insurance rates are based on the entire group of employees. Because coverage is provided to all eligible employees, the premiums don’t reflect your individual health status.
If you leave your company, you likely will lose your group life insurance. Sometimes the group life insurance is “portable,” which means you can take over a company insurance policy and turn it into an individual policy immediately after you leave your employer. If your group policy is portable, perhaps the policy’s terms will be better than what you could obtain on your own. However, the more likely scenario is that you will have a new job that offers similar insurance for little or no cost, in which case it wouldn’t make sense to “port” your previous group life insurance policy.
Individual life insurance
You can buy life insurance directly from companies like MetLife and Northwestern Mutual. Most of the time, someone that is in good health and is a non-smoker can qualify for individual rates that are lower than the Group rates. Additionally, an individual policy is not based on employment; you have continuous life insurance coverage regardless of where you work.
Basic Coverage Through Work + Individual Policy
Enrolling in the free basic coverage is a given. If you want additional life insurance, you have two options, and the best option depends on your desire for convenience/time savings.
- Enroll in supplemental life insurance through work. Depending on your company’s benefits package, evidence of insurability may not be required.
- Enroll only in the free basic life insurance through work, and then apply for an individual life insurance policy (rather than the supplemental life through work).
If my client is in good health and doesn’t smoke, I generally recommend option #2. The individual life insurance rates are usually cheaper than for supplemental coverage through work, and an individual policy isn’t tied to her job. The downside is that you’d have to: (1) schedule a medical exam (paid for by the insurance company and completed by a company that does exams for insurers), and (2) complete a relatively short packet of medical questions. The independent insurance broker who serves my clients makes the process as easy as possible by having the medical examiner travel to the client’s home or office.
If you have a serious medical condition, option #1 might make more sense. A group supplemental life insurance policy could be cheaper than buying an individual policy, and you could skip the medical exam depending on your company’s benefits package.
If you’re unable to work due to illness or injury, the policy would replace a certain percentage of your salary for the duration of the disability or the length of the policy’s benefit period. You can either buy group disability insurance through your job, or you can buy an individual policy through an insurance agent. If your compensation is less than $400,000 per year, a group policy is likely sufficient.
During my review of clients’ benefits packages, their group disability policies require a 90 day waiting period, after which the policy replaces 60%-67% of their monthly base salary with a maximum monthly benefit of $10,000-$20,000.
Disability benefits are generally tax-free if: you have an individual disability policy, or you use after-tax dollars to pay the premiums for a group disability policy. If your employer pays for the disability insurance premiums, the disability benefits would be taxable.
AD&D (Accidental Death & Dismemberment)
This insurance only pays a benefit under a narrow set of circumstances: accidental death, or the loss of a limb. I generally tell clients to not enroll in this benefit.
Critical Care Insurance
Also known as critical illness insurance, which provides a lump-sum cash benefit to help cover expenses associated with a qualifying serious illness. This insurance only makes sense for people who don’t have an emergency fund, and typically the benefit amount isn’t that high. I generally advise my clients to not enroll in this benefit.
Pre-Paid Legal Services
Sometimes employers provide legal services like Rocket Lawyer or MetLaw Legal Plan at a low premium that’s deducted from your paycheck. You would have access to their network of attorneys to help with certain personal legal services. Common services include general document reviews, real estate matters, and estate plan preparation. Based on my clients’ experiences, the level and quality of service they received from the attorneys through these legal services was mixed. These attorneys had a high volume of clients they were trying to help, and the attorneys didn’t answer follow-up questions or take the time to clearly explain complicated legal concepts. If you need legal advice, you likely would be better served hiring an attorney directly.