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
- 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
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
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?
- 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
- DO include a secondary or contingent beneficiary in
- 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.
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
- 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.