For most people, open enrollment usually occurs in the fall. This is the time of year to review your healthcare benefits and make sure you’re still getting the coverage you need.
If you’re at the mid-career level, there are some specific bases you should be covering. So this fall, here are some points to look out for when your employer sends you your open enrollment information:
Open Enrollment: Health Savings Accounts and Flexible Spending Accounts
Open enrollment is also a good time to set up a health savings account (HSA) or flexible spending account (FSA.)
If you don’t have these accounts or aren’t sure what they do, here’s a quick overview:
- HSA – An HSA is typically offered by employers with high deductible health insurance policies.
That money is tax-deductible, earnings are tax-free, and withdrawals used for qualified medical expenses, including paying your health insurance deductible, are also tax-free.
It’s a portable account, so if you change jobs, that money goes with you.
- FSA for medical expenses – This is similar to an HSA, but has some differences.
Contributions can still be tax-free, and withdrawals should be tax-free if you use the money to pay for qualified expenses.
But you do have to tell your employer how much to take out from your gross pay for a year to put into your FSA. So if you hesitate to put money in at open enrollment time, you might be out of luck until the next year’s open enrollment season rolls around.
You do have to spend that money within the year or until a grace period is up, so it doesn’t roll over like an HSA.
- FSA for dependent care – Another important FSA you might not be aware of is the dependent care FSA, which is a pre-tax benefit account used to pay for eligible dependent care services. It covers programs like preschool, day camp, before or after school care, and daycare for both children and adults.
According to FSA Feds, you can save an average of 30 percent on dependent care services with a dependent care FSA.
You use pre-tax money to pay for qualified care. The money you put into your dependent care FSA isn’t subject to payroll taxes.
This is another account you sign up for at open enrollment time. Do your research on it now so you’re prepared when open enrollment season begins.
Disability insurance is one of those things that people tend to gloss over and ignore, because they think it doesn’t apply to them. But according to the Council for Disability Awareness, just over one in four of today’s 20-year-olds will become disabled before they retire.
Disabilities can and do happen, and they can be devastating if you’re not prepared.
Disability insurance pays disability benefits as a partial replacement of your income due to certain injuries or illnesses. It replaces your income over the long term if you can’t work.
There are two main types of policies: short-term and long-term. Short-term policies typically offer coverage for six months or less while long-term policies usually offer coverage beyond six months.
Many employers offer short-term disability policies as a benefit of employment. The problem is that if you have a decent-sized emergency fund, you really shouldn’t need short-term disability insurance anyway.
It’s really important to invest in a long-term disability policy that aims to provide coverage up until retirement age. Some large employers offer that coverage – whether they offer it as automatic coverage, allow you to opt-in, or provide a minimal amount of coverage, but allow you to opt in for a higher coverage amount.
It’s important to find out exactly what your policy offers – don’t assume you’re covered only to find out you’re not.
Life Insurance Coverage
Life insurance replaces your income if you were to die while still relying on an income.
When you’re figuring out how much coverage you need, you should look at having enough to cover your liabilities and providing your replacement income.
Your employer might offer life insurance policies, but don’t assume that’s enough coverage. In general, you want to cover at least 7-10 times your annual income. If your employer’s life insurance policy falls short, you can supplement with an individual life insurance policy.
In general, you should have at least half of your life insurance coverage outside of work.
There are two main types of life insurance: permanent (like whole life,) and term life insurance.
The difference is that permanent life insurance offers a death benefit plus an investment piece. Term life insurance offers death benefit protection for a set amount of time, like 10 or 20 years.
In most cases, term life insurance is a better buy.
Why? The short answer is that it covers the basics until you hit retirement, which is what life insurance is supposed to do. If you want that investment component, you can put your money into actual investments outside of your life insurance policy.
But for the long answer about perm vs. term life insurance, go here.
Additional Open Enrollment Resources
If you want more information on open enrollment, see my posts below: