Its a Scary Time of Year – Open Enrollment

With Halloween at the end of this week, the open enrollment period for most people’s employee benefits will be underway. For the roughly 71% of companies whose fiscal year end is December 31st (according to Audit Analytics, an accounting profession research group) open enrollment begins at the end of October and lasts through the month of November. Surveys suggest that people spend little time on this activity. I have to admit that there was one year when I failed to do anything during open enrollment. Fortunately for me, my company’s policy was to just continue the benefits that I had signed up for in the previous year. But, open enrollment is a great time to give yourself a financial check-up. Not only do you have an opportunity to review your health insurance coverage, but your company may offer other benefits that are worth reviewing.

Health Insurance: With coverage costs seemingly constantly on the rise, there is a good chance that there will be some change to your health care options. In its annual survey, Aflac found that more than four in ten workers didn’t understand some aspect of their health care coverage. Its important to review what your plan covers, and how much your company subsidizes.

  1. Make sure your doctor and typical prescriptions remain on your policy’s preferred list to make sure you get the maximum benefit.
  2. If you are covering your spouse and children, make sure its your cheapest option. It may be less costly for your spouse to get his or her own coverage through their employer.
  3. More than half of larger companies offer a high deductible plan as well as a more traditional plan. If your’s is one, carefully consider your likely medical needs before just choosing the lowest cost plan. If you visit the doctor frequently, which may be the case if you have young children or a chronic condition, your total out of pocket expenses including your premium may be lower with a traditional plan.

Retirement Plan: While you can generally make changes to your 401(k) or other employer sponsored retirement plan at any time, open enrollment, when financial things are on your mind, is a good time to review your retirement account.

  1. If your company offers a contribution match, make sure you are contributing at least enough to get the match. A typical match formula will have your employer contributing three to four percent of your salary if you contribute six percent. That’s free money that you shouldn’t walk away from.
  2. If you are already contributing the six percent, contribute more. Each year make your way toward maximizing your contribution if you want to have enough money to live on when you stop earning a paycheck.
  3. Review your beneficiaries. Regardless of any other documents you may have, such as a will, financial institutions rely solely on your beneficiary designations to distribute your account in the event of your untimely demise. If your spouse has changed, make sure your prior partner is not still your beneficiary. Do not make minor children beneficiaries, because financial institutions cannot distribute money directly to them until they turn 18. Consider establishing a family trust, and making it your beneficiary, to allow your children’s guardians easier access to the money needed to raise your kids.

Disability Insurance: Disability insurance, particularly long term disability insurance, tends to be a voluntary benefit, meaning that employees have to elect the coverage and pay for it. As a result, many employees skip it to save the money. If your company offers disability insurance, take it. One in four 20 year olds will become disabled before they retire. Disability isn’t just the result of accidents and illness. According to the Bureau of Labor Statistics, most disability claims are for muscle, joint or back pain which are much more common. Your most important asset is your ability to make a living, and disability insurance helps you protect your income.

Life Insurance: You may already have life insurance. Many employers provide basic term life insurance coverage for free. However, if you have a spouse or children that depend on your income, it is not likely to be enough. Most policies have a benefit worth one or two years of your annual salary, which won’t be nearly enough to cover your family’s long term financial needs. To calculate how much life insurance you should have, try this calculator. Once you have your number, you can work with your insurance agent to buy the additional life insurance you need. Yes, if you have a car, you have an insurance agent, who will likely be able to provide you with a competitive quote for term life. Term life insurance is a policy with a specific term and no cash value. The same rules for beneficiaries that apply to retirement plans, apply to life insurance, so if you already have a policy, check that your beneficiary designation is correct.

Other Benefits: Many employers offer flexible spending accounts. These accounts allow you to set aside a portion of your pay, pre-tax, for anticipated expenses in a few categories. Health care flexible spending accounts are for out of pocket health care expenses. They can be used for most medical expenses, and they are a great way to save for large pre-planned medical procedures, such as braces, or other procedures where your health care plan doesn’t provide full coverage. However there are other flexible spending accounts that may be available to you. You may have a dependent care or a transportation flexible spending account that allows you to pay for day care or parking/public transit expenses. By paying with pre-tax dollars you are reducing the cost of the service you are buying by your tax rate. The catch is that if you don’t use the money you’ve set aside, you lose it at year end. So make sure you are careful in estimating your expenses when using these accounts.

If you actually spend time thinking about open enrollment, all of the decisions can be a little scary. However a little attention to detail will allow you to get the most out of your employee benefits. What your employer offers may not be enough to meet your family’s long term financial needs, so while you’re reviewing what your employer has to offer, look into what you need to do to shore it up.

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