Starting a new job is a whirlwind of emotions. You have a new position, new co-workers to meet, and a whole new set of challenges to tackle. Then, right when your brain is already full, HR asks you to log in to the employee portal and make massive decisions about your financial future. It's completely normal to feel overwhelmed by these choices, but this is actually a perfect moment to build a stronger foundation for your life.
The benefit of benefits
Think of your benefits as the safety net for your entire financial journey. When you look at the menu of options, prioritize the three types that offer genuine peace of mind.
First, there is health insurance to cover medical expenses for you and your family. Second, disability insurance protects your ability to earn a living by replacing a percentage of your income if you can't work. Finally, life insurance helps your family financially if you pass away. These aren't just perks. They are critical tools for protecting you in both good and difficult times.
Why employer plans are often a better deal
While you can certainly go out and buy insurance on your own, getting it through your new job is often the smarter financial move for two specific reasons.
1. Leverage and pricing
Because employers represent a large group of people, they have leverage to negotiate better prices than you could get as an individual. Group benefits are generally more affordable than privately offered insurance.
2. Tax savings
Most insurance benefits are offered on a pre-tax basis. This means your employer deducts the premiums from your paycheck before calculating your income and payroll taxes. When you get your W-2 at the end of the year, you'll see that your taxable income is significantly lower than your actual salary because you didn't pay taxes on that money used for premiums.
Health insurance: Traditional vs. HSA
Your employer may offer you two main paths for health insurance: a traditional plan or a plan eligible for a health savings account (HSA).
A common rule of thumb is that an HSA can offer great savings for younger, healthier employees who don't anticipate needing a lot of medical care. If you have a family, an HSA is worth looking at, but it may not be the best option depending on your specific needs.
When you're reviewing the policy details, look closely at the deductibles, co-pays, out-of-pocket maximums, and coinsurance. You should also check the prescription drug coverage and the difference between in-network and out-of-network options. Don't forget to check if your preferred doctors or facilities are in-network. Finally, remember that dental and vision coverage are core elements of health insurance that you should explore fully.
Disability insurance: Protecting your income
Your ability to earn a living is one of your family's greatest assets, and disability insurance is there to protect it. This usually comes in two forms.
Short-term vs. long-term
Short-term insurance replaces a portion of your income almost immediately if you're disabled. It usually covers you for 3-6 months. Long-term insurance generally takes over after the short-term coverage runs out. This can cover you for years, or even up to retirement age.
The replacement rate
Generally, disability insurance replaces 60-70% of your income rather than 100%. Your employer might offer options to pay extra to increase that percentage. It's also important to check if the benefits paid out to you are pre-tax or post-tax, as this can have a significant impact on your actual take-home pay while you're recovering.
While many people with a substantial emergency fund might feel they can get by with only short-term coverage, long-term policies offer protection against serious issues that can be devastating to your financial life.
Life insurance: Group vs. private coverage
Most companies offer basic life insurance coverage that tends to be automatic. They also often offer voluntary group life coverage. This group option can be an inexpensive way to get coverage, but be aware that costs will increase as you're getting older.
Why we often recommend private coverage
For individuals and families, we typically recommend acquiring private coverage. This allows you to commit to a specific level of coverage, generally more than what is available through a limited group plan, and lock in your annual premium so it doesn't rise over time.
That said, group coverage through work can be very appealing for individuals who are less insurable due to health issues, as it often requires less medical underwriting.
The Facet difference
Making these decisions during your first week at a new job can be stressful, but you don't have to do it alone. At Facet, we believe financial planning should be about your whole life, not just your investment portfolio. Our flat-fee membership model pairs you with a CFP® professional who can provide the expertise and insight you need to weigh these trade-offs without selling you commissioned products. We're here to help you fit these insurance pieces into a personalized roadmap designed to help you live well today and tomorrow.
