Open enrollment [benefits] season is here! As a CERTIFIED FINANCIAL PLANNER™ professional it truly is one of my favorite times of the year. Reading that last sentence out loud sounded nerdy, so I digress. Your benefits guide contains an endless amount of financial planning topics ranging from -- retirement planning, life insurance, and estate planning. Your booklets are filled with various acronyms and definitions such as PPO, HMO, HSA, and FSA. But this week's blog isn’t intended to educate you on those, or how to select the correct employee benefits.
Instead, I want to share our top 3 open enrollment [benefits] hacks for 2021.
[Spoiler alert: the last one includes brand name sunglasses at a low cost]
Employer provided plans allow for an additional benefit called legal insurance. This may sound like something you need only if you land behind bars, but not so fast my friend!
Group legal insurance allows for something that is extremely important for partners and families of all ages. I’m talking about your estate plan. Estate plans aren’t only for super wealthy families like Johnny and Moira Rose (prior to their misfortune). We see estate plans as a necessary adulting purchase for all of you. [I’m hoping I scored some bonus points from Natalie for the Schitt’s Creek mention].
Your basic estate plan includes your will, power of attorney, and health care directive. The will provides direction on how to distribute your assets should you pass away. For young families, it’s also the only place that names guardianship for children in the event of the legal guardian’s passing. A power of attorney grants authorization for someone to act on your behalf should you be unable to make a decision or if you become incapacitated. A health care directive provides clarity on your end of life wishes such as choosing to be on life support. This might seem a little doom and gloom, but think about the potential conflict this is removing from your surviving family members!
Drafting these basic estate planning documents will typically cost over $1,000 if you find an attorney on your own. Now, here’s where the benefit comes in. We typically see group legal insurance costing $20 per month [$240/yr]. So if you use an in-network attorney to draft your estate plan that’s at least $700 in cost savings that your employer is providing, especially in an area that is so critical to holistic financial planning. Take advantage of this if you have it!
Side note -- Group legal insurance also provides for benefits such as identity theft defense, debt collection defense and court appearances. Employers usually add in a clause that says you cannot use the legal insurance benefit for employee-related matters or against your employer, so if you plan to sue your company, you’ll have to find help elsewhere.
Whenever I write insurance in a heading I feel compelled to remind you that we are fee-only financial planners that do not sell products [insurance] for commissions! Ok, now that we’ve gotten that out of the way... Group life insurance up to a certain amount of coverage can be provided at no cost. We see that employers cover up to 1-3x your base salary. Any group life insurance coverage in excess of this limit would be taken from your paycheck at an additional cost.
Now, you’re likely wondering how much life insurance do you need?. We’re big advocates for the human life value calculation. So let’s provide an example:
Ron Swanson and Tammy Swanson
Ron’s annual income -- $125,000
Years until Ron’s retirement -- 30 years
Discount rate -- 5%
Tax rate -- 25%
Ron’s Estimated Human Life Value Calculation
$1,500,000
Ron’s employer covers 2x his base salary [$250,000]. To be adequately covered [$1,500,000] Ron is now short $1,250,000. Ron could now pay a premium at his employer to supplement coverage, or he could visit with an insurance broker to find a separate term insurance policy to supplement that difference.
We would recommend that Ron seek additional coverage outside of his employer. This will help lock in a policy and premium regardless of where he works. If Ron quit his job 10 years from now, then he would have to find coverage at that point. Ron’s health may have gotten worse, his new employer may not offer him as much insurance, or he could simply forget purchasing insurance all together. All of these things make purchasing outside insurance more appealing.
If you want us to take an unbiased look at your employer provided insurance, and review if your household is adequately covered, schedule a FREE consultation with us.
I always envied those that wore Ray-Ban or Maui Jim sunglasses. I wanted a pair, but I could never justify spending over $150 for sunglasses. Now, if someone else was paying for them (like Natalie’s old employer) then I’m all in! And that’s exactly what I did. Here’s our final benefits season hack -- purchasing brand name sunglasses at a low cost.
I first learned of this benefit when I went on Natalie’s benefits at her former employer [it’s ok to be on your spouse’s benefits]. Natalie has prescription glasses and I do not. She opted into vision coverage. Her vision plan provided her with an annual allowance [meaning she could purchase up to a certain dollar amount] for frames, and also provided me a separate benefit allowance. Natalie put her allowance to good use by getting a new pair of prescription glasses and prescription sunglasses [apparently prescription sunglasses are a game changer for all of you that enjoy camping].
Rather than letting my vision benefit go to waste, I decided to get a routine eye exam. Who knows, maybe my perfect vision that Natalie envies changed! Well, it didn’t. The spousal vision benefit also allowed me access to that frame allowance on a pair of brand new Ray-Bans. So, rather than paying $154 on a pair of sunglasses, I received them for $10. Many vision plans offer a frames allowance of $150 [check out your benefits guide for your specifics!]. Your frames allowance may be available on an annual or biannual basis.
Side note -- Read your benefits guide fine print because some employers only allow you to use the allowance for prescription needs. If that’s the case, maybe they can add the smallest adjustment possible for all my fellow 20/20 friends.
There you have it, our 3 favorite hacks for the upcoming open enrollment season. Clients typically come to us with concerns regarding estate planning and life insurance for their partners and growing families. Sometimes we don’t have to look too far for the best coverage. Employers value their employees, so they want to provide you with benefits (like some sweet shades) that make you want to stay. Selecting the default options is rarely the best option. We live in a society where we are constantly distracted and lose focus [SQUIRREL!]. This is an area that deserves your full attention.
So here’s my final advice to you during open enrollment...
Slow down and think about what you’re selecting -- it impacts you, your family and your financial wellbeing.
Contact us if you would like a second opinion on selecting your 2021 benefits.
- Dan
Disclaimer: This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.
