3 Things You Need To Know
- Be sure to understand what insurance coverages your new company will offer, and what costs (if any) you will incur if you enroll in those insurance benefits.
- Make sure you ask what each policy will cover, and any additional co-pays or deductibles that will apply.
- If you must choose between long and short-term disability insurance, select a long-term disability policy, which offers significantly greater financial protection.
When you’re ready to start looking for your first job, be sure you consider the entire benefits package, including the insurance coverages offered, and not just the salary amount. Insurance can save you thousands of dollars a year, and the types of insurance your future company offers could vary.
Some employers offer life insurance, health insurance (sometimes including dental and vision benefits), disability insurance and retirement program as part of their benefits. If your new job offers these benefits, make sure you take advantage of them. Employers can provide coverage for their employees alone or for the employee and their family.
Cost is usually the determining factor. With the high cost of health insurance, employers are more likely to ask employees to pay some or all of the costs of health insurance for their families and sometimes for the employees themselves.
Most people do not think about life insurance until they get married and have a family. Employer-provided life insurance is often a multiple of your salary (i.e. If your salary is $50,000 a year and your policy states it's three times your salary, your life insurance coverage would be $150,000). It’s not uncommon for individuals to accumulate various types of insurance; inexpensive term insurance makes sense for young people with greater insurance needs. A cash value-based insurance program with its level premium makes sense too. An insurance agent can help you decide what type of life insurance is best for your situation.
Life insurance is a key financial planning tool that is often used to provide for these costs associated with premature death:
- Lost income — Deceased wage earner’s income is lost.
- Final costs — Funeral costs, medical expenses, and so forth.
- Outstanding debts — Credit card debts, mortgage, etc.
- Unpaid long-term obligations — To supplement retirement savings and fund college tuitions, child care expenses, home maintenance expenses, and so forth.
- Estate planning costs — Estate taxes, probate costs, lost charitable contributions, and so forth.
- Unfulfilled family obligations — Both economic and noneconomic.
How Much Life Insurance Do You Need?
To determine how much life insurance is appropriate, a Trusted Choice® insurance professional can help answer two important questions:
- How much cash will be needed? These immediate costs often include uninsured medical expenses and funeral expenses. Additionally, many consumers have financial obligations that do not go away upon death: a mortgage loan, auto loans, loan or line of credit, credit card debt and college costs, to name the most common.
- How much annual income would sustain a household? An estimate of income for a family starts with the amount of income earned in the year prior to a breadwinner’s passing. From there, additional expenses (child care, for example) should be added; while living expenses for the deceased person can be subtracted.
The “Dos and Don’ts” of Naming a Beneficiary
Naming a beneficiary requires some thought. Always keep your beneficiary information current on all your life insurance policies. Here are some things you should do and some things you must avoid when naming a beneficiary:
- DO identify the primary beneficiary. This should include their full name(s), date of birth, and/or social security numbers.
- DO designate percentages rather than specific dollar amounts.
- DO include a secondary or contingent beneficiary in your policy.
- DO re-visit your life insurance policies every few years to ensure the beneficiary designations are current.
- DO amend your life insurance policy if your circumstances change, for example in the event of marriage, a new addition to the family or the death of a beneficiary.
- DON’T name a beneficiary generically such as "wife," or "spouse" or "children." If you file for divorce and do not specifically name a designated beneficiary(s), there will likely be a legal battle for the benefits of your policy. Likewise, in the event that a family member becomes disenfranchised for any reason, you will want to ensure that your beneficiaries are specifically named.
- DON’T name minors unless you have a designated guardian for the children.
- DON’T name a creditor as a beneficiary.
A majority of Americans receive group health insurance coverage through their employer. Health insurance can protect you from the full expense of regular health care, as well as the costs of medical and surgical procedures. In exchange for paying a premium, your insurance company will cover the costs of your healthcare and certain types of medical procedures.
Health insurance can cover a variety of things, from your regular checkups and family care to major medical expenses. The types of services that are covered will vary with different healthcare providers and plan types, so it is important to determine your needs before buying a specific health insurance plan.
You will pay a premium based on your plan and coverage whether you get your health insurance through your employer or privately. Depending on your type of plan, you may have co-pays, deductibles and coinsurance. Here is an overview of these costs:
- Co-payments: The insurance company agrees to pay for a service but you must cover a pre-set cost, such as $20. This cost applies every time you schedule that service; co-pay amounts vary depending on the plan.
- Deductibles: The amount of money that you are required to pay before your insurance begins to cover services. Normally, you will either need to meet a deductible or pay a co-pay amount.
- Coinsurance: Requires you to pay a certain percentage of services rendered. Your coinsurance may be an amount you pay in addition to your co-pay and may apply toward your deductible.
Health Savings Accounts (HSA)
Your employer may offer a Health Savings Account or HSA. Your HSA account acts as a health care savings account which you can deposit into and withdraw from as needed. Not only do you not have to pay taxes on that amount, but the money rolls over from year to year. Any money left in the account gains tax free interest. If you don’t use all your funds, there’s nothing to worry about.
At 65, you can use your HSA funds for anything you want, and the distribution will not be subject to tax. You can use your HSA account to take care of expenses like co-pays and health care costs.
An HSA account isn’t for everyone, and you should assess your healthcare needs before you invest in one. If you have regular out-of-pocket medical expenses and they are costly, a health savings account may not be for you. Meeting the high deductible may keep you from contributing the maximum amount to your HSA account, which minimizes the benefits.
On the other hand, if you have low healthcare costs and rarely visit the doctor, HSA insurance plans may work well for you. You can choose the amount of money that you contribute to your HSA account and some employers will match this. The flexibility of contribution levels and low premiums makes an HDHP/HSA insurance plan an affordable healthcare option for many. Make sure you understand the limitations of your policy because health savings accounts have pros and cons as well as some rules.
Short and Long-Term Disability Insurance
According to the U.S. Census Bureau more than 30 million Americans between the ages of 21 and 64 are disabled and a 25-year old has a 52% chance of becoming disabled. Individuals rarely anticipate that they might become so severally ill or injured that they would be unable to work and earn their normal income.
Social Security Disability is often difficult to obtain since the restrictions state the client must be completely disabled with no hope of recovery for at least one year. Workers’ compensation only covers if you are injured on the job. And personal savings goes fast when trying to keep up with the mortgage, care and other obligations.
Your employer may offer both short-term and long-term disability insurance as part of your benefits package. While some employers may pay for the entire premium, others deduct some or the entire premium from their employees’ pay. Alternatively, the employer may pay for coverage up to a certain limit and allow the employee to pay extra to upgrade coverage. It is important to be aware that employer-provided plans pay only 60 to 70 percent of your income.
An injury or illness can result in a short-term disability (described as a few days to eighty-nine days) or a long-term disability (described as 90days up to five years, or up to a lifetime benefit limit).
Short-term disability insurance provides coverage for a limited amount of time. You receive benefits after a short waiting period of up to 14 days. You are then covered for the length of time specified in your policy, which can be from several months up to one year.
Your policy will also indicate a maximum coverage amount. You will receive benefits until you exceed the policy’s specified time limit or maximum coverage amount, or until you recover. Short-term disability insurance policies pay out benefits circumstances such as:
- A lengthy illness
- A disabling injury
- The birth of a child
Long-term disability insurance covers injuries and illnesses that prevent you from working. It does not cover child birth. Long-term disability claims normally take up to 90 days to process, sometimes longer. After your claim is settled, you can receive benefits for several years, until you reach age 65, or until you recover.