Open Enrollment & the Women's Soccer World Cup
The Beshear Financial team
The recent U.S. Women’s Soccer World Cup was certainly a moment that the players and the fans will never forget. Often, the passion of a fan can take over and they will celebrate a goal with just as much gusto as a player. While football (i.e. soccer) fans and players are not employed by the same company, if they were, they would be grouped together for purposes of life and disability insurance. This would hardly seem fair to the athletes, and yet that is what happens to some employees when it comes to their employee benefits.
Age-Banded Life Insurance
Most life insurance policies offered through employers is age banded. This means that rather than being charged for the insurance based on your actual age, you are grouped together with employees who may be three to five years older than you. There is not a big price difference in insurance for a 32-year-old and a 35-year-old, but for a 47-year-old and 50-year-old there is a difference. This difference is often so substantial that it is cheaper for the younger employee to purchase term insurance on their own.
A side benefit of purchasing term insurance directly rather than through the employer is that the employee keeps the same policy if they should change companies. They own the policy, not the company, and thus do not lose the coverage if they change jobs. Most corporate policies are able to be converted to a permanent policy, but the price is often thousands of dollars more per year. Additionally, when the employee owns the policy there is no gap in coverage between the old job and becoming eligible for benefits at a new job.
Corporate Disability Insurance Not Like Car Insurance
Several years ago, my car was hit by a newly licensed teenager merging onto I-71. No one was injured, and I can only imagine what happened to the poor kid’s insurance rates afterwards. But my car was fully repaired to the same condition it was before the accident. This is not how disability insurance works.
Most corporate policies replace 50% or 60% of salary if an employee is disabled long-term. In many cases, income from bonuses is not included. For many, bonus income may be 15% to 50% of total earnings, and those dollars may not be covered.
Because the corporation deducts the cost it pays to provide disability insurance, the IRS then taxes the disabled employee on any payments they receive. So, a 60% salary replacement may actually feel like 45-50% after taxes. It is the rare family that can endure income being cut in half and not have to make some serious lifestyle changes. Imagine if car insurance had only repainted half of my car after the accident.
The solution is to purchase additional disability coverage outside of what the company offers. Absolutely keep the policy the employer provides, but a second policy can be put in place. When the employee pays the cost of the coverage, the IRS does not tax any dollars paid. So, the disabled person actually keeps the full dollar paid to them from these policies.
So, why do so many people continue to go through their employers for policies that could be cheaper or do not truly cover the risk? The answer is time. Open enrollment, for many companies, takes place in the fall and lasts a week, perhaps two. Most people cannot get the pricing information they need in that tight period of time to make an informed decision.
By the publication of this article, the World Cup will have ended, and if futbol has given way to football on TV, then it is time to gather information about getting insurance from outside your company. This will put you in the best position to make an informed decision when
open enrollment comes.
Article prepared by Wealth Management Advisor Ben Beshear with the cooperation of Northwestern Mutual. Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, WI (life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries. Ben Beshear is an agent of NM and a registered representative of the NMS based in Cincinnati, OH. To contact Ben Beshear, please call 513.366.3664, email him at firstname.lastname@example.org or visit his website, www.beshearfinancial.com/.