Open Enrollment, Done Right (and With Fewer Headaches)

 

Many of our clients are getting ready to enter into “open enrollment” for insurance this season.  Having helped clients make decisions over the years on how to best coordinate these benefits, I’ve seen many people leave money on the table, and we want to help make the most of what is available to you!

Whether you work a W2 job, are self-employed, or are retired, the need to make choices on how you handle medical, disability, and life insurance.

 

Let’s break down a few considerations in each area…

 

Medical insurance is one of the hottest topics in the press today, and for good reason.  Having just had our third baby, I am personally familiar with the high costs of insurance and ambiguity on what to expect to pay at the doctor.  As I write this, I still don’t know how the costs of that delivery will shake out between all of the initial appointments, the birth itself, and then all the follow up over the next few months.  Because of this, many are afraid of the term “high deductible” because they assume it means “high cost”.

While that may sometimes end up being the case, it’s important to weigh the options.

 

 

Here are a few things to think about as you select your health insurance this year:

 

When comparing high-deductible vs low-deductible plans, make sure you consider all costs including:

 

• The total cost for each (premium)
• The difference in deductible (the amount you will be on the hook for before insurance coverage kicks in)
• The co-insurance amount (how much of the cost does the insurance company cover once the deductible is met)
• The out of pocket (OOP) max (the total amount you could pay in a worst-case scenario).
• Any lost employer HSA contributions for being on the low-deductible vs high-deductible plan.

Additionally, if you are married (potentially with children) and both spouses have access to coverage, consider running three scenarios:

 

• Everyone on spouse A plan
• Everyone on spouse B plan
• Splitting the coverage between two plans
• *some plans charge extra to add a spouse if they have access to their own coverage, but it still may be worth looking at the total cost including any surcharge, as it could come out more affordable and avoids having two separate deductibles.

Lastly, if you are self-employed or retired, make sure you work with a broker who can help you evaluate things like

 

• Whether you should have a company medical plan or individual policy
• Whether an Affordable Care Act (ACA) plan makes sense or if a more robust private insurance policy is available
• What types of Medicare plans may make sense for your given health circumstances.

 

 

Beyond medical insurance, the other major choices that employees make during this enrollment period is whether to get disability and/or life insurance.  We believe that insurance is an important part of a financial plan when your financial success depends on your future income and your ability to keep producing it.

Between disability and life insurance, disability is by far the least understood.  I believe that this is because most of us are very aware of our fear of dying and how that might impact others around us, but disability is often a much less defined circumstance.  While disability may not feel like such a high risk, according to the social security administration, 25% of people who begin work at 20 years old will be disabled before normal retirement age.   It is important to have a plan in place in case it happens to you!

Here are a few things that we look at when evaluating disability insurance coverage:

 

• How much do you spend?
• What would social security pay you/your spouse if you became disabled today? (you con find this information in your social security report on www.ssa.gov)
• If you have access to employer coverage, what percentage of your income will it replace? Do they consider bonuses in that percengage or have an income cap on benefits?
• Would they cover you if you were able to go back to work, but in a lower paying job? Some insurance will stop paying benefits if you can work in a different capacity vs other policies pay out unless you can go back to work in your specified job.  This is especially important if you work in a high paying or skilled profession.
• Would you qualify for a private long term disability policy as opposed to using employer coverage?

 

Depending on the answers to these questions, you may choose to leverage your employer’s disability or your own private plan.  Either way, unless you have enough wealth set aside to retire tomorrow, you likely need some level of disability coverage. 

Once you’ve decided how to handle medical and disability insurance, you’ll likely be faced with a decision on how much life insurance to have.  As a rule of thumb, we suggest you have 25x your expenses, minus what you already have saved.

 

For example, a couple with 10k/month of living expenses and 1M in savings/investments may consider acquiring roughly 2M of life insurance (120k/year * 25 = 3M – 1M = 2M).

We typically recommend clients consider strong convertible term-insurance policies that keep monthly premium expenses low while providing a death benefit if needed.  While term insurance has an expiration date, the “conversion” provisions in these convertible term policies allow you to lock the benefit in for life if you became uninsurable and still needed life insurance.

While we do not sell insurance to minimize conflict of interest, we believe that insurance is a critical part of a financial plan that allows us to control for the uncontrollable.  As a part of our planning process, we look at each clients insurance need and help ensure that they have the right risk controls in place.

If you are looking to take a more robust approach to open enrollment this season, take a look at our annual enrollment checklist, and please reach out with any questions!

 

If you have questions about how these concepts fit into your financial plan, please reach out.

 

Thanks For Reading! We Hope To See You Again!

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Advisory services offered through National Wealth Management Group, LLC, a Registered Investment Adviser. This information is intended for educational purposes and is not intended as a recommendation to buy or sell securities. Investing involves risk. Before investing, you should consult with a financial advisor to determine how a specific investment strategy fits your personal goals and objectives.