Group Life Insurance

Many employers offer group life insurance on one or all of the employee, spouse and children.

Coverage

The type of life insurance offered by employers is called term life insurance. It will pay the stated benefit if the covered person dies during the policy period.

My employers generally provided life insurance on the employee with a benefit amount equal to one year’s salary at no charge.  I was able to purchase more insurance on my life and smaller amounts on my spouse and children.

Exclusions

Group life insurance won’t provide the stated benefit if the cause of death is excluded from coverage. The most common exclusions with which I’m familiar are suicide and murder by the beneficiary.

If these nuances are important to your decision, you’ll want to ask your human resources representative what exclusions exist under your employer’s coverage. Much more importantly, if you are concerned about your mental health or your physical safety, please seek help! There are free crisis lines that will help with either issue or contact your local hospital for mental health concerns or police for safety issues.

How to Decide About Yourself

Whether to buy life insurance is often a tough decision, as we all like to think we will still be alive at the end of the year. We especially don’t want to think about what will happen if we or a loved one dies.  

With respect to your coverage level, you’ll want to think about whether you have any dependents and, if so, whether they’ll be able to sustain their current lifestyle without your income and personal expenses. If you have no dependents and very little debt, you might not need more life insurance than one times your salary.  On the other hand, if you have children, have some or a lot of debt or are barely covering your expenses, you might want to buy more life insurance to make sure there is money to pay down your debts or support your children if you die.

You’ll also want to consider the cost of the life insurance and whether it fits in your budget. For more information on budgeting, see my introductory post and nine-part series with step-by-step details to create a budget, starting with this post.  If buying life insurance means that you don’t have enough money to cover the basics, you might need to take the riskier approach and not purchase life insurance or not purchase as much.

How to Decide About Your Spouse

The considerations for insuring your spouse are similar to buying insurance for yourself.  You’ll also want to consider whether your spouse’s employer provides any life insurance and compare the face amounts offered and premiums between the two plans.

How to Decide About Your Children

The amounts of insurance available for the death of children are usually relatively low, in the range of $5,000 to $20,000.  I view the primary purpose of buying life insurance on children as covering funeral and related expenses. If you are able to afford a funeral and everyone who “should” attend can afford to do so, you are less likely to need life insurance on your children.  However, funerals and travel can be quite expensive, so life insurance on your children could cover some or all of those expenses. As always, you’ll want to evaluate whether the cost of life insurance on your children fits in your budget.

Disability Insurance

Disability insurance replaces a portion of your wages if you are sick or injured.  In the US, where workers’ compensation insurance covers workplace illnesses and injuries, disability usually covers only non-occupational illnesses and injuries.

Types of Disability Insurance

Many employers offer wage replacement in a number of components.

Sick Time or Paid Time-Off

Many employers provide sick time or paid time off benefits that pay you 100% of your wages when you are sick. There is often a limit on how many days of sick time you can take. More recently, vacation dates are included in the limit and the total is called “Paid Time-Off.”

Short-Term Disability Insurance

After a stated waiting period called an elimination period, short-term disability insurance will replace some or all of your wages.  I have seen short-term disability plans that pay between two-thirds and 100% of wages (excluding bonus) for between 13 and 26 weeks. I have never had an employer charge me for short-term disability insurance, but imagine some employers might do so.  Some governments outside the US, including Canada, offer programs similar to short-term disability. If your employer requires that you pay some or all of the premium for a short-term disability program, I suggest you research the benefits provided under any government program in your decision-making process.

Basic Long-Term Disability Insurance

After you have exhausted your short-term disability benefits, you may be eligible for long-term disability benefits if offered by your employer.  The basic long-term disability plans I have seen have paid between 50% of salary to two-thirds of the sum of salary and target bonus. Some long-term disability plans provide benefits for only a limited number of years while others will provide benefits until your normal retirement age.  In all cases, benefits stop, of course, if you recover and are able to return to work. I’ve had employers fully fund basic long-term disability and others that required that I share a portion of its cost. If you pay some or all of the premium for long-term disability insurance, the corresponding portion of any benefits you receive are not subject to income taxes.

Supplemental Long-Term Disability Insurance

Some employers give you the option to increase the percentage of your income that is replaced by long-term disability at your expense.

How to Decide

The decision whether to purchase any optional coverage depends on two key aspects of your financial situation. Are you able to support yourself and your family if you are ill or injured for a long time? Does the cost of the disability insurance fits in your budget?

At one (pretty unlikely) extreme, you don’t need to buy additional coverage because you have enough savings for retirement, any children’s education and even more or you could maintain your current lifestyle on your savings or your spouse’s income.  At the other extreme, you might find it difficult to afford disability insurance. In that case, you probably are also in the greatest need of it as one missed paycheck could be devastating financially. As such, the decision to purchase disability insurance is a balance between your need for the coverage in case you can’t work, your likelihood of having an accident or becoming serious ill and your ability to pay the premium.

Dependent Care FSAs

Dependent care flexible spending account (FSAs) allow you to set aside a portion of your paycheck without paying any taxes on the money. You must use the money to cover out-of-pocket expenses related to care of dependent children or parents that allow you to go to work.  You do not pay Social Security or Federal income taxes on money put into or withdrawn from a dependent care FSA. In many states, you also do not have to pay state income taxes.

There are restrictions on the types of expenses you can pay from your account. You can generally pay for child daycare (both traditional daycare and nannies), elder care, before-and-after school programs and sick childcare services, among others.  If you plan to use the money for other services, you’ll want to confirm that they are acceptable. This publication from the IRS web site provides lots of details about who can qualify and the types of expenses that are acceptable.

You lose any money money you contribute to a dependent care FSA if you don’t spend it in the same year.  For most people, the 2018 maximum contribution was $2,500 if you were single and $5,000 if you are married. If your dependent care expenses are highly likely to exceed that limit, the tax savings make it reasonable to contribute the maximum.  If your expenses are likely to be less, you’ll need to take care in selecting the amount of your contributions.

Extended Health Care Insurance (Canada)

In Canada, many of the basics of healthcare are provided through the government health plan.  However, many important expenses are not covered, including prescription drugs, medical devices (e.g., crutches, wheelchairs and orthotics), various practitioners (e.g., chiropractors, physiotherapists and psychologists) along with many other types of medical expenses.  Extended health care insurance covers a portion of these costs, with the portion and specific costs covered varying from plan to plan. Other features of some plans include dental and vision coverage, the portion of ambulance services not covered by provincial insurance and semi-private hospital rooms.  The insurance includes many of the same coverage terms used in US health insurance. If you are considering the purchase of extended health care insurance, I suggest that you read my Health Insurance post, excluding the sections on HealthCare Flexible Savings and Health Savings Accounts.

Dental Insurance

Dental insurance pays for preventative dental services (usually two to four cleanings per year), a portion of other dental expenses (fillings, crown, root canals, for example) and sometimes orthodontia. The amounts of these expenses covered depends on the deductible and coinsurance.

Every dental insurance plan I’ve had offered by employers has had a very low maximum, such as $1,500 or $2,500.  This coverage differs from most other insurance products. Most other insurance products protect against things you can’t afford to lose, such as the injuries caused by a car accident or a tornado that destroys your home.

Dental Insurance Cost Comparison

Because dental insurance has such low limits, it doesn’t provide much protection against large dental bills. As such, the decision to purchase it is primarily a comparison of your premium with your covered expenses. Each year, I estimated my family’s dental expenses by type.  That is, I considered how many family members get regular cleanings, what the visits would cost and how many of my children had braces.  For this part of my analysis, I ignored all other dental expenses, such as fillings or root canals.

My dental plans always had the same coverage in and out of network, so the cost analysis was straightforward.  Before doing any sort of cost-benefit analysis, you’ll want to make sure you understand how in- and out-of-network dental expenses are treated, determine whether your dentist is in the network and reflect the impact on your covered expenses.  I applied the deductible and coinsurance to the expenses and compared the amount I estimated I would recover from the insurer with the premium. Networks, coinsurance and deductibles are all covered in my post on health insurance.

Discounts negotiated by the dental insurer with providers are another component of savings.  Similar to health insurance, the cost of dental services provided by in-network providers when you have dental insurance can be significantly less than the cost if you don’t have insurance.  This savings is difficult to quantify initially, but you can estimate it once you have used the same provider under a single dental insurer for a year or two. You can then include those savings in your analysis as a cost covered by the insurer.

How to Decide Whether to Buy Dental Insurance

If the premium and amounts covered by the insurer were fairly close or the premium was less, I would buy the dental insurance.  If the premium was significantly more than the covered expenses, I usually took my chances that no one would need any expensive dental work.

As with all other financial decisions, the risk-reward trade-off is an individual one so you will need to decide for yourself how much extra premium you are willing to pay to have a portion of unexpected dental expenses reimbursed by the insurer.  As you do so, remember that there is likely a fairly low cap on the total coverage provided by the insurer, so you’ll want to see how much of that maximum you’ll use up with your preventative and orthodontia expenses in evaluating that risk-reward trade-off.

Acknowledgements

I again want to thank Laura Kenney for her invaluable help with this post.

Vision Insurance

Vision insurance is generally covers the basics – eye exams related to vision correction, glasses and contact lenses – and doesn’t usually cover more serious eye conditions.  As an aside, you should be aware that some eye conditions are considered medical in nature and are covered by health insurance. If you have an eye condition, I suggest contacting your health insurer to see if it is covered as a medical condition.

Networks of Providers

Vision insurers usually create a network of providers. My experience is that there are huge differences in coverage in and out of network, so you’ll want to see whether your providers are in or out of the network. I ran into a situation in which my eye clinic was listed as being in network, but it turned out my specific eye doctor was not. As such, it might make sense to call your eye doctor’s office before selecting vision coverage to confirm whether your specific provider is in your network.

Cost Comparison

The decision whether to by vision insurance is fairly easy. You want to answer the question, “Will I recover more than the premium?” I start by making a list of my expected annual vision expenses, including how many sets of glasses and contact lenses each person in my family is likely to need. I then apply the co-pays, deductibles and/or coinsurance to see how much I will receive from the vision insurer. See my this post on Health Insurance if you aren’t sure how co-pays, deductibles and coinsurance work.

I am also aware that some health insurance plans cover a basic vision exam. You’ll want to research whether your health plan includes that benefit. If your health insurance plan has that coverage (and your provider is in your health insurer’s network which will likely be different from the vision insurer’s network), you’ll want to exclude any recoveries from the health insurer or exclude those expenses from your list before estimating recoveries from your vision insurer.

How to Decide

I compare the total amount I estimate I will recover with the premium.  If the premium is less than the recoveries, I purchase the coverage; otherwise I don’t.  Many vision insurance plans do not cover anything other than preventative services, glasses and contact lenses.  As such, the decision to purchase vision insurance is often a straightforward cost-benefit comparison and is less focused on risk and reward.  Of course, if your plan covers other eye issues, you’ll want to take those into consideration in your decision-making process.