Have you been getting open enrollment emails and snoozing or deleting them because:
a) You don’t have the mental energy these days to think about critical care insurance, accidental death and dismemberment coverage levels and whether you might need legal representation in 2023.
b) You’re a “set it and forget it” type when it comes to financial planning — and after enrolling in benefits back in 2005, you’re OK as is.
or
c) You’ll get to it tomorrow. Really.
If so, congratulations: your lack of enthusiasm around updating your coverage levels makes you similar to the vast majority of American workers.
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But for certified financial planners, open enrollment for employees is a season of possibility — and important work.
The Union-Tribune interviewed two San Diego financial planners — one with a large firm, Pure Financial Advisors, and one with a smaller practice, Planning Within Reach — about how to make the most out of open enrollment. Both are fee-only, which means their compensation comes only from the fees they charge their clients rather than from commissions or other forms of payments derived from selling financial products.

Q. Can one be overinsured through workplace programs?
A. Accidental death and dismemberment (AD&D) is cheap and people sometimes obtain quite a large amount of coverage without being clear that this only pays out if a death is accidental (like a car crash), or you suffer a severe injury, such as losing a limb. In comparison, term life insurance will pay out whether the death is due to natural causes or an accident. If you need life insurance, buy life insurance that pays the amount needed regardless of how you die. Every case is different, but often times when I explain this people drop the AD&D and increase their group term life policy.
Q. How do you know how much life insurance you need?
A. You need to analyze this with an adviser or an online calculator because it varies. Does the surviving dependent want to stay in the current home, stop working if they are the sole parent, or want to be able to pay for kids’ college (public or private tuition)? All of these things impact the life insurance need, so it is best to do a calculation thinking through all of the variables.
Q. What coverage or benefit tends to be underutilized? Something your clients overlook and you’re thinking, “WAIT! That’s key. You’re leaving money and peace of mind on the table.”

A. The legal services benefit is one that most people don’t obtain but can be a great option to elect if you haven’t completed your estate planning documents. Not every company offers this benefit and for those that do, there are different services associated with it. For example, some companies give you access to an attorney to complete your trust, will, durable power of attorney and living directive. For a very minimal cost (I have seen around $20 per month), you could use this benefit instead of paying over $2,000 to get it done by a lawyer on your own. On the other hand, some legal services benefits only give you access to software like LegalZoom for you to create a will on your own, so that is less appealing. If you don’t have a legal services benefit, ask your HR representative. Companies want to have competitive benefits packages. I have had clients successfully get this added to their benefits lineup by just asking.
Q. When should someone make changes to benefits during open enrollment and when should they leave things as is?
A. Everyone should review their elections in detail during their annual open enrollment. Even if there hasn’t been a major life change, there may be a new benefit added this year that you should take advantage of.
Q. What kind of benefit would you like to see more companies offer?
A. Reimbursements for financial planning services. I had one client that first hired me years ago because his company offered him a few thousand dollars each year to use toward financial planning.
Q. Can you provide a cheat sheet for people who might make these selections in a hurry and don’t have you on their team to handle this kind of analysis? What are the most important items people should tackle during open enrollment, if nothing else?

A. Yes:

Q. Can someone be overinsured through workplace programs?
A. One of the most over-used insurance workplace programs is Accidental Death & Dismemberment (AD&D) policies. They are very inexpensive, but that’s because they rarely pay out. (People don’t often become dismembered. There are many other ways to die besides in an accident that this policy doesn’t cover such as cancer, flu, and heart attack.)
Q. How much life insurance should someone buy — is there a rule of thumb?
A. General rule of thumb is eight to 12 times your salary. But, the specific amount varies drastically from person to person. There are several different factors to look at to determine the appropriate amount of life insurance, such as age, health, income, expenses, marital status, number of children, ages of children, net worth, goals, etc. One way to determine the appropriate amount of insurance is to map out your cash flows, run a what-if scenario showing what the cash flows look like with a premature death, and then calculate the amount of life insurance needed to fill the gap.
It also might make sense to explore the option of getting a private term life insurance policy (one that’s outside of the workplace benefits) instead of relying solely on group life insurance. The cost of group life insurance increases exponentially as you age, whereas level-term policies have fixed premiums over the lifetime of the policy. Unlike most group life insurance policies, term policies will also stay in effect even if you retire or change jobs.

Q. What coverage or benefit tends to be underutilized? Something your clients overlook and you’re thinking, “WAIT! That’s key. You’re leaving money and peace of mind on the table.”
A. There are three main benefits that I think are underutilized: HSAs, Roth 401(k)s, and After-Tax 401(k)s.
HSAs — You need to be enrolled in a high-deductible health care plan to be eligible for an HSA. HSAs are extremely tax-efficient; you get a tax break for anything you contribute (i.e., if you contribute $2,000 to an HSA, you pay income tax on $2,000 less income), any of the growth in the HSA (if it’s invested) is tax-deferred, and you can take money out of your HSA tax-free for medical expenses. I also see two common errors among people who do utilize HSAs. 1) People keep the funds in a money market account instead of investing it. 2) People withdraw most of their money from the HSA each year instead of treating the HSA as a retirement account and letting the money grow for tax-free use in retirement.
Roth 401(k)s — Many people assume they’re going to be in a lower tax bracket when they retire, but that isn’t always the case. Many people end up in a higher tax bracket in retirement and end up paying more taxes over the course of their lifetime than they should. You need to run the numbers to see what’s best in your specific circumstance, but it might make sense to pay the taxes now and build up some tax-free accounts.
After-tax 401(k)s — This is not a common feature of most 401(k) plans (I wish more employers would offer it). Many employees who do have this option in their 401(k) don’t know about it. And the ones that do know about it don’t know how to use it properly. After-tax 401(k)s allow you to put more money into your 401(k) above the normal IRS limits ($22,500 per year in 2023, plus an additional $7,500 if you’re age 50 or over). Contributions to an after-tax 401(k) can then be rolled into a Roth account. (This is a complicated strategy, so be sure to consult your financial planner and/or tax adviser to make sure it’s done correctly.)
Q. Open enrollment aside, what year-round benefit should people take advantage of, if they do nothing else?

A. At bare minimum, start contributing to your 401(k,) at least to get the full employer match.
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