It’s Annual Enrollment Time: How to Choose Company Group Benefits That Have Real Value for You

Just because your employer offers a group benefit at a reasonable cost doesn’t mean it’s worth it

We’re in the thick of the open enrollment period for insurance and other benefits, and workers tend to check a lot of boxes on the yearly form. They likely need the health insurance, and perhaps vision and dental are no-brainers. But what about that employer-provided life insurance, disability insurance, or accidental death and dismemberment coverage?

It’s only a few dollars more a month for six figures of protection, right?

“Might as well,” many people say. “Seems like a good deal.” In some cases, it is. But often, policies are either unnecessary and huge profit centers for providers or ones that an employee should get somewhere else. So, here’s some perspective on choosing the benefits that are right for you.

Event + impact + when it might happen = true value

During annual enrollment, many employees can sign up for discounted products or insurance-related protection offerings that are the core of the add-on benefits offered by companies. The plans seem like a good deal because they often are, cost-wise. Tax advantages, employer subsidization, and/or the advantages conferred by group risk sometimes enable a discount of around 25%.

But the actual value of an insurance policy, for example, relies on assessing what might happen and its impact along with the possible time horizon. And many people don’t give these factors much thought when checking those boxes in open enrollment.

For example, we see many individuals sign up for accidental death and dismemberment policies, which are essentially like life insurance policies that don’t cover as many causes of death. When we ask them why, they usually say, “Because it’s cheap.” Meanwhile, the individual didn’t sign up for disability insurance because it costs a little more. Nevertheless, the latter policy may be more valuable, more likely to pay out, and potentially more useful for that individual and their family than an accidental death and dismemberment policy.

Most people don’t die in a fiery accident, but many more could easily encounter something—an illness, accident, or another event—that makes it impossible to work. And the cost of becoming disabled goes way beyond healthcare expenses. Just multiply a likely salary times years or decades of not working and the number is immense. Thus, an individual who chooses accidental death and dismemberment over disability may have made a poorly considered decision—they checked a different box because it was only $1.98 a month.

Even disability insurance may not make sense for many people, and there is a reason why those providers are so profitable. Prospective policyholders should carefully evaluate these benefits in light of their circumstances and options. Complicating matters is a crucial limitation of company-sponsored plans: maintaining employment is necessary to keep the policy. If you are in between jobs or go to work for a company not offering a disability policy, for example, you would have no coverage unless you purchased individual coverage outside of the previous employer’s benefits.

Timing matters for company benefits

To illustrate this concept, let’s look at life insurance, a popular company benefit that’s usually very affordable. However, getting a policy through your employer comes with some caveats:

1. Basic policies are cheaper but offer less coverage (often, one times salary) than most outside options, though some employers offer supplemental policies. An assessment of any life coverage should involve realistically estimating your and your family’s needs should you die. This projected number is usually a lot more than a year or two of salary.

2. Again, company life policies typically only offer coverage as long as you are employed at the organization. This window significantly reduces the odds it will ever be used and means a policyholder needs to find a new provider when they change jobs—which happens a lot, these days. In contrast, establishing a long-term relationship with an outside provider earlier in life can have significant financial benefits down the road.

These factors apply to most forms of insurance, of course. For example, an employer-sponsored disability plan is useless if you suffer debilitating injuries in a car accident when you are between jobs. And establishing long-term policies of many types when your risk factors are lower can save significantly on rates when those risks increase. Any individual who changes jobs eight times in a 25-year career while only using employer-sponsored plans won’t realize such discounts.

We’re not saying all company-sponsored benefits aren’t worth it—some are excellent. But individuals should carefully consider their circumstances and options to make an informed choice. This advice extends beyond insurance to company benefits like flexible spending accounts and retirement plans. For example, should contributions be pre-tax or post-tax? Does a retirement plan provider provide sufficient resources to make informed investment decisions? Is there a company match? Employees should evaluate these factors and more. And if they can’t make heads or tails of them, seeking help is a good idea.

Basic due diligence—and sometimes, outside assistance—is best

The essential advice for leveraging employer-sponsored group benefits is simple, though following through on it may get complicated: Make sure you thoroughly understand these options. And talk to somebody who can help you if necessary.

Employees who are uncertain about the value of an optional benefit should consult with their HR departments, benefits providers, accountants, human resources consultants, or financial advisers. Speak to knowledgeable individuals who can assess your circumstance and help you make an educated decision. Sometimes, an individual should choose a company benefit, whereas other times, it makes more sense to seek out an outside provider or avoid the offering entirely.

Don’t just make a quick decision without understanding why you should or shouldn’t check that extra box.

It’s tempting. It might only be a few bucks a month. But there could be better options that are more useful and save money in the long run.

Karp HR Solutions helps employers design and implement benefits programs that provide real value to employees and guides workers and jobseekers on employment issues. Contact us today for a free consultation.