Discuss your employee benefits with your financial advisor.

How to Review Your Employee Benefits

Accepting a new job is about much more than salary. Health insurance, retirement savings options, disability insurance and life insurance are commonly offered employee benefits, and more and more companies are starting to offer insurance for legal services and in-office wellness perks. 

Some of these benefits, like insurance policies, require you to pay premiums for coverage. Others are free and may actually save you money, either by reducing your spending elsewhere or by offering tax-advantaged savings options. A benefits package is typically worth around 30% of your salary. 

As you evaluate a potential employee benefits package, weigh each benefit based on how valuable it is to your family — and not just in the financial sense.

Standard employee benefits

Health insurance

Most employment contracts include health insurance as a benefit. But employer-sponsored health insurance plans can vary widely, which may have a significant impact on your take-home pay as well as what care your insurance will cover. Insurance plans include three key dollar values: The deductible, the out-of-pocket-maximum, and the monthly or annual premium. 

The deductible is the total amount you will have to spend out-of-pocket in a year before your insurance provider begins paying for your medical care. For example, if your plan has a $2,000 deductible, you will have to spend $2,000 on copays, and out-of-pocket payments to specialists in a calendar year before your insurance provider will start paying a portion of your bills. Even after you meet your deductible, your plan may include coinsurance. For example, if you see the language “25% conisurance after deductible” that means after you reach the deductible, you will continue paying 25% of the cost of care going forward until you hit the out of pocket max.   

If you hit your plan’s out-of-pocket maximum, your insurance provider agrees to pay for 100% of the medical care covered by your plan for the rest of the year.  

It is important to understand the various components of your healthcare plan, especially if you anticipate higher medical expenses in the next calendar year.   

Every plan generally charges a  premium, which is the amount that will be deducted from your paycheck. Most employers offer several plan options with different premiums. Typically, plans with lower premiums have higher deductibles and out-of-pocket maximums, meaning you spend less on a monthly basis but could end up spending large amounts on healthcare in case of an unexpected medical expense.

Some high-deductible plans offer health savings accounts (“HSA”). Policyholders can contribute to HSA accounts regularly and use the money as they need it to cover qualified medical expenses. HSAs are notable because contributions are made pre-tax, reducing taxable income. As long as you use withdrawals to pay for qualifying healthcare expenses, those withdrawals are not taxed either. The other benefit of an HSA is that you are not required to use it during the calendar year, nor is it tied to your employer. If you leave your job, you can take the HSA with you.  

Since HSAs offer multiple tax benefits — you contribute pre-tax, contributions grow tax-deferred, and money comes out tax free if used for qualifying medical expenses — it can be used as another investment vehicle for retirement.  Many HSAs offer an option to invest the account in lieu of using it for current medical needs.Someone who contributes to an HSA throughout their working life and invests it could save six figures to help cover medical expenses as they age.  Talk to your financial advisor about whether this strategy is right for you. 

In 2019, individuals can contribute up to $3,500 to an HSA, and those with family coverage can contribute up to $7,000. If you are 55 or older, you can contribute an extra $1,000. These limits include employer contributions as well, so make sure to check if your employer offers a contribution to the HSA. 

Disability insurance

Short-term disability coverage offers you some compensation if a non-work-related illness or injury makes you unable to work for a limited amount of time. Short-term disability may cover recovery from an injury or from major surgery, an illness that requires frequent treatment or significant changes to your routine, and pregnancy and delivery in some cases. 

Most short-term disability plans pay out 50% to 70% of your salary with a cap at a certain dollar amount. Some plans may offer variations based on how long you’ve been with the company or what requirements are on the books in that state. Employers in California, Hawaii, New Jersey, New York and Rhode Island are required to offer short-term disability to their employees, and these states have specific regulations about what these plans must cover.

What qualifies as “short term” depends on your plan, but typically, short-term disability insurance will not cover you for more than a year. It is also important to note that you can legally be fired or laid off while on leave covered by short-term disability.  

Long-term disability policies are designed for injuries and illnesses that make you unable to work in your field for an extended period of time.. These policies typically kick in after short-term disability policies end. 

The duration of long-term plans varies widely by industry: Some plans will only pay out a few years of disability, while others will pay out until you turn 65. Generally, they will also pay out 50% to 70% of your salary with a monthly or annual cap. 

Note that if your employer covers the cost of disability for you, if you ever collect on the policy, the benefits will be taxable to you. If you pay for the premium instead, the benefit will be tax-free.

If you are a physician whose income depends on your physical ability to perform, make sure to obtain the right individual disability insurance coverage

Life insurance and accidental death insurance

Many employers offer group life insurance policies that will pay out about one times your base salary in the event of your death. Many of these policies include supplemental riders for accidental death and dismemberment, which means they will pay out an extra benefit (often in the same amount as the basic life insurance policy) if you die as a result of an accident. 

AD&D insurance is usually a supplement to a term life insurance policy, but not always. If your employer only offers AD&D coverage, it is not a replacement for basic life insurance. Employers may also offer supplemental life insurance in multiples of your salary at a premium cost. If you are young, the premium is usually pretty small.  

Employers usually cover these basic policies at one times your salary, and if yours does, there’s no reason not to take this insurance. But if you want your life insurance policy to provide more support for your family in the event of your death, talk to a financial advisor about additional coverage. Since the life insurance is a benefit provided by the employer, then if you leave your employer, you usually cannot take the life insurance policy with you.

Other employee benefits

Healthcare and dependent care FSAs

Flexible Spending Accounts are similar to Health Savings Accounts, in that you can contribute pre-tax dollars to them and withdraw as needed for specific expenses. However, you must spend the money you contribute in the same year. And if you leave your job, you cannot take your FSA with you.

FSAs are most commonly used for dependent care services, including preschool, childcare, and before- or after-school programs. You can also use FSA funds to care for an adult relative who lives in your home. 

Since FSA contributions must be spent in the same year, FSAs are primarily useful for tax planning. If you make the maximum contribution — $2,500 if you are married filing separately and $5,000 if you are married and filing jointly, single or as head of household — and spend it on dependent care, you can reduce your taxable income while paying for largely unavoidable expenses. 

Wellness perks

Some companies offer lifestyle perks to make their offices more attractive and their employees healthier. These can include free meals, gym access, spaces for sleeping or yoga, and on-campus mental health services. 

If your company offers these wellness perks, try to quantify them. What current spending, like a gym membership, could you eliminate? That will give you a sense of whether these perks are valuable in the financial sense or whether they merely make the office more pleasant. 

Group legal services 

Group legal services plans are a type of insurance that covers legal expenses. Typically, employers secure agreements with insurance providers, and then employees pay premiums monthly or annually. If enrolled employees need personal legal services, from drafting a will to finalizing a divorce, these plans can fully cover those expenses. 

Like health insurance, legal services plans limit you to certain service providers. But unlike health insurance, employees with legal coverage may not have to pay anything for out-of-pocket services or may need to pay a small deductible. 

There are lots of limits to what group legal services will cover, so if your employer offers a policy, review it closely before deciding whether or not to enroll in the plan. 

Comparing employee benefits in two-income families

Some employee benefits, particularly health insurance, can cover the employee’s spouse and dependents as well. So households with two working partners have a choice: Should each partner keep their own coverage, or should they pair up? 

The answer to that question depends heavily on what each benefits package offers. If one partner’s health insurance has significantly lower premiums or a lower deductible, it may make sense for that plan to cover the whole family; on the other hand, if one employer will match HSA contributions, that may prove the more valuable benefit. Note that more and more employers are now charging a surcharge if you add a spouse to your coverage when the spouse is eligible for coverage through their own employer.  These surcharges can be hefty, so it is important to incorporate that into the analysis.

Not every benefit should be combined or based on just group coverage. For example, physicians should have individual disability insurance and most adults should have their own life insurance policies. However, evaluating the other benefits across both employers is a good exercise to ensure you are taking advantage of what is important for you and your family.

Work with your financial advisor to review all of your options and figure out what combination of employee benefits makes the most sense for your family.

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