Open Enrollment and Protection Planning Amid Covid-19

The Covid-19 pandemic has taught us to expect the unexpected, and that planning for anything can be challenging. But one thing you can plan for is open enrollment.

Maybe you’ve been on autopilot and elected the same options for years, but what about now? Should the global crisis influence your elections for this next year of coverage? And it’s not just health insurance open enrollment to consider either. Here are eight things to know for your upcoming enrollment season.

1.  Health Insurance

When’s the last time you checked your health insurance plan? The coverage you have in 2020 may not be the right fit for your needs in 2021. Employers offer different coverage types, and it can be challenging to determine which may be best for you and your finances.

If you’re given the option to have a Health Reimbursement Account (HRA) or a Health Savings Account (HSA), it is a great way to have money placed aside for your current or future healthcare needs.The biggest advantage of an HSA is that it can be invested and earn interest, tax-free. Additionally, your contributions are tax-deductible and all funds placed in an HSA that are used for qualified medical expenses are not included in your taxable income for the year.

This makes the HSA one of the few accounts that enjoy what is called the tax trifecta and is a fantastic way to enhance the savings for future medical expenses (not to mention paying for health care in retirement.)

So what happens to your accounts if your employment has changed this year? Don’t worry; your HSA goes with you. On the other hand, HRAs are owned and funded by your employer, so some companies don’t allow you to have those funds once your employment with them ends. Check with your HR department to learn more about your plan.

But what about health coverage? In 1985, COBRA was enacted to protect employees from losing their health insurance benefits when no longer employed. By law, you are entitled to maintain your current health insurance for 18 months after ending employment. However, COBRA may not be the best option for you. It is important to research your options through your state’s healthcare exchange to determine where you can find the best insurance option for your situation. Interested in learning more about the differences between HRA & HSA? Look for a future article from our team that breaks down the distinctions and how to leverage these medical savings accounts to better save for healthcare in retirement.

 2.  Life Insurance

Life insurance is a difficult topic to talk about for a multitude of reasons. We are forced to face the inevitability of passing away, understand why we need life insurance, and figure out what it covers. If that’s not complicated enough, you also have to decide what amount of coverage to get, what terms you need, and who should be the beneficiary.

So, where to start? It begins with determining the amount of life insurance that you need. Let’s first focus on the Human Life Value. No insurance company will insure you for more than you are worth. The tricky part is that most people significantly undervalue themselves, so you have to look at how insurance companies calculate your insurable value. The Human Life Value evaluation gives you how much life insurance you should get by taking the number of years to retirement multiplied by your annual salary.

Another way that insurers calculate your coverage needs is called the Capital Needs Value.  This includes all of your debts and obligations, on top of your annual salary.  This option is more common as people get older because it excludes any assistance needed to raise children with one parent or future education desires.

Whether you use the Human Life Value, the Capital Needs Value, or a combination of the two, it is important to see how the amount of life insurance would support those who are dependent on you. The life insurance that is available through your employer can provide a solution to having the appropriate amount of life insurance for your needs.

Let’s not forget to cover what should happen with your life insurance if you leave an employer. Many group policies are “transportable,” but they are based on lower than average health concerns: i.e., overweight or high blood pressure. It can be less expensive to buy outside policies, so reviewing costs with your Financial Advisor once a year is recommended.

3.  Disability

Some employers offer two types of disability benefits: short-term and long-term. You may be surprised to find out that you have a disability benefit, and your employer has been paying the  premium. Short-term disability can pay up to 100% of your wages if you cannot perform your daily tasks at work. Something as simple as a broken wrist or even Coronavirus could potentially qualify you to receive these benefits and help make sure that you don’t have to burn through your PTO to receive income. Short-term disability is an excellent tool to help bridge the income gap if you are faced with a one-time event. However, what happens if something more significant occurs?

Long-term disability insurance can also be offered through your employer but will only kick in with benefits after a waiting period (which can be as long as six months). It typically pays 40% to 60% of your salary. Additionally, if your employer is paying the premium for your policy, it is likely that your benefit will be taxable, further reducing the amount of income you have to cover expenses.

If your employer doesn’t offer disability insurance, or the amount offered will not be enough, you can purchase disability insurance benefits on the open market, but be prepared to go through the underwriting process. Companies that provide disability insurance can ask you health questions and charge you higher premiums if you have pre-existing conditions. A significant benefit of getting disability insurance from your employer is that you do not have to worry about being individually underwritten to get approved for coverage. Look for future articles about why disability insurance is essential to your overall financial planning.

4.  401(k)

Commonly, the plan that your employer provides is a 401(k). However, there are many others, such as 403(b), 457(a), SEP, Simple, and Profit-Sharing. These plans allow you to contribute your own dollars (both pre and post-tax) to your retirement. Many plans also offer matching contributions. The 2020 employee contribution limit for 401(k) plans is $19,500 with an additional $6,500 per year for 50 years old or older individuals. With Covid-19 and the heavy fluctuation in the market, we have experienced why diversification in your 401(k) portfolio as well as in other investments is so important. If you have all your assets in one place, you’re exposing yourself to a serious risk to your capital.

You’ll also want to be aware of in-service withdrawal options that allow you to move funds into an IRA after the age of 59 ½ for more investment options and control. Many people faced unexpected financial needs during this pandemic. If you took money out for a COVID-19 related issue, you have three years to put it back and avoid potential taxes and penalties. If the 401(k) withdrawal was not done in 2020, amending your tax return will be necessary.  There were also law changes this year that allowed flexibility surrounding distributions. We encourage you to reach out to us to understand the ripple effects of these law changes so that you can handle them with confidence.

For those who were fortunate to find themselves still employed, it may be a good time to reevaluate your 401(k) contribution amount.  For many, expenses have changed as COVID-19 has impacted the world around us.  You may find yourself spending less on items that you had budgeted for and increasing your 401(k) contribution might be a way to take advantage of this.

5.  Pensions

If you have a pension, you are a few of the lucky employees that still have this offered to you. If you are eligible for this benefit, you will want to verify if it’s guaranteed or insured. You’ll want to know the details of what happens to your pension if your company is no longer around, or how it impacts your retirement or your spouse if you pass. Here is a link to find out if the government backs your pension. We also have a short video that shares more about how our team helps educate individuals on their pension choices.

6.  Group Legal and Estate Planning 

The Group Legal Services Insurance Plan provides comprehensive legal coverage that is voluntary, employee-paid, and designed to meet the most common personal legal needs of an individual and their family. Group Legal allows you access to Attorneys for writing and reviewing documents. You have to sign up for the year, but it’s an excellent opportunity to get all the legal documents you have been putting off squared away, such as Wills, Trusts, Healthcare Directives, and Power of Attorney.

While this benefit is helpful, it is still important to interview the attorney that you are referred to and determine if they are a good fit for you.  Your employer does not vet the attorneys that participate in these programs so you have to do your own due diligence.

7.  Beneficiaries

Updating beneficiaries is a detail most often left behind when people review their benefits each year, and with the current uncertainty in our world, it’s essential. Our team recommends reviewing this information every year. If you pass away, beneficiary designations will always take precedence over benefits outlined in your Will or Trust.. With that in mind, it’s a great time of year to review your benefits as well as your beneficiaries so that they reflect your true wishes. Typically you can change your beneficiary at any time, but it is a wise idea to verify they are up to date during open enrollment.

8.  Education Benefits

Are you looking to update your skills or wanting to help your company grow? More and more, we see employers offering the benefit of education assistance. It is a terrific way for the employer to retain employees and, better yet, a great way to keep an edge in your industry.  Be sure to check with your employer if they offer these benefits. If they do, you’ll want to understand any stipulations that come with the benefits. Some employers may reimburse you after a passing grade on the course, while others will pay for it in advance. Don’t get caught off guard by having to pay back your education expenses if you leave your job. It is not uncommon for employers to have a clawback clause when it comes to education benefits.

There are a lot of things to consider during open enrollment, but it’s important to remember that the options you choose will help lay a better foundation for your retirement. If you have any questions or want to chat with an advisor, reach out to us. Be sure to also download the Open Enrollment Checklist we have created for you. We want to guide you in making educated selections that will help you live greatly.