Liz Weston

Well, Sean, your chances of becoming disabled are actually much higher than dying during your working years.

Really? Today's 20-year-old has a one in four chance of being disabled before retirement, which is about twice the risk of dying, according to Social Security actuaries. Workers' compensation covers only work-related illness and accidents, and a lot of disabilities aren't job-related. But what if you have decent savings already?

Well, that's great, but a 2018 Federal Reserve study found only 40% of U.S. households had liquid savings equal to three months' expenses, and less than 30% had enough for six months. On top of all that, the average Social Security disability benefit in 2023 is $1,483 monthly. That adds up to less than $18,000 a year. Yikes. That will not get you very far if you're unable to work.

I had a great conversation with John Ryan, not to be confused with our earlier guest, Ryan Brady. And John is the founder and CEO of Ryan Insurance Strategy Consultants. That's coming up in a moment. Stay with us. Hey, John, it's great to have you on Smart Money.

So we're going to talk about some various kinds of insurance that folks might have as options on their employer-sponsored benefit plans. And I'd like to have you help us out first on disability. So what exactly is disability insurance and why would somebody need it?

Okay. And I hear that people are much more likely to be disabled than to die during their working years. Is that true?

So you mean that a disability is less likely to happen to you if you have an office job, which makes sense, than if you have a blue collar job or where you're out working with machinery or something else that could hurt you.

That's good to know. So what does employer-provided disability insurance usually cover?

Yes, one place where people tend to be critically underinsured is their income. How would you get by if you could no longer do your job? How would your loved ones manage if you're no longer here? Disability and life insurance can help fill the financial gaps if something bad or something worse happens to you.

So there's short-term disability and long-term disability. Can you talk about how those work?

And then the long-term can run for a certain number of years, or as you said, all the way up till retirement age.

Are there differences between what kind of disability you would go on or qualify for if you're unable to do your specific job versus if you're not able to do any job?

Okay. And actually, I wanted to get into that a little bit because people, if they're working and they're injured at work, they're typically covered by workers' compensation insurance. And John, we should talk a little bit about what that is and how it relates to disability coverage.

Yeah, I think it varies a lot by state, so it's good to look up, but it doesn't cover anything that happens off the job, right? Correct. And when it comes to Social Security, I understand that's pretty hard to get.

So today we're going to look at all the different types of insurance that can protect your income because open enrollment is a great time to review your options.

And speaking of employer provided disability insurance, is this coverage portable? Does it follow you to your next job if you quit this one?

And what should people know about buying an individual disability policy?

Even more rigorous than life insurance.

Interesting. Now you said medication search. So somebody is actually keeping track of what medications we take that we are insured for. And so there's a big database somewhere that these companies can check?

There's a database for everything.

All right. Well, let's move on to hospital indemnity coverage. This is something that our listeners might know of because of a certain duck in those advertisements. Is this something that's generally offered by employers in a benefit package?

So even though you don't recommend it necessarily, can you explain what it is, what hospital indemnity insurance does and what purpose it serves?

So it's basically like they're just giving you cash, essentially.

And finally, John, let's have you explain critical illness insurance for us. Pretty much what it sounds like, right? Insurance in case you get a critical illness.

So once again, if you can get the disability policy, this might be a backup.

Okay. What's the extent of the benefit that you usually get from this insurance? Like cancer or Parkinson's or something like that could keep you out of work for months, if not years. How long do the payments go on and how much are they usually?

We're going to start with life insurance, and our guest is fellow nerd Ryan Brady, who covers insurance. Ryan, thanks for being here. Great to be on, Liz. Thanks for having me. All right, give us a scoop. What even is life insurance? How does it work when you're getting it through an employer plan?

So if you have like a family history of cancer or something like that?

I assume there's a pre-existing condition clause though, right? If you already have cancer, can you get this coverage?

this all feels a bit overwhelming. And like, if I'm not insured for all the worst case disasters that could ever befall me, I'm in trouble. So is there such a thing as too much insurance against life?

Oh, that's super helpful.

Why are women considered a higher risk?

Put you on the spot here, John.

So it's actually based on what the insurance companies are experiencing, not just because they've decided that women are flaky.

Very good. So the rules of thumb you were giving us are really helpful. Is there anyone that doesn't need disability coverage?

Okay. So if you are approaching retirement and you're all set or you're Elon Musk, you probably don't need disability insurance.

John, thank you very much. We really appreciate your help.

Yeah. The bigger problem is that people get overwhelmed with all their choices, and then they don't do anything to protect themselves and their loved ones, or they don't do enough. Our guests gave us some great information about how to think through this coverage and fit it in with all the other stuff that we want to do with our money.

And of course, we have lots of resources on the NerdWallet site to help you figure all of this out.

We're talking about pets. Oh, my favorite topic. Well, pet insurance, at least. It's one of the many benefits you'll find companies offering during open enrollment, along with things like gym memberships, adoption assistance, and we can't forget, insurance for caring for your eyes and teeth.

And remember to follow, rate and review us wherever you're getting this podcast.

And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Okay, good. Now, at what point in your life do you want to start contemplating getting this kind of insurance? Should it be earlier in your career, mid-career?

Oh, and I think I know why.

I think a lot of people are in the same boat. They don't think about it until the first kid comes along or sometimes when they buy a house and have a mortgage with somebody else and they realize, oh, if something happens to me, they wouldn't be able to keep the house.

Now, we've been talking about this as a benefit of employment. Don't some employers just give you some life insurance, almost whether or not you want it? And how much is that usually?

Ryan, is that generally enough coverage? And if not, what kinds of coverage could you get maybe through supplemental insurance from your employer?

And we'll have a link to that in our show notes. Now, Ryan, do you have to do a medical test to qualify for that extra coverage?

Yes, and in this week's episode, we're going deep on insurance that's supposed to help you protect your income if something happens to you and you can't provide for yourself or your family. In other words, you are either disabled or you die. Liz, nobody wants to talk about this stuff. I know, I know, but everybody really, really needs to.

Okay. Now what happens to all of this if you decide to quit and go work for another company? Can you take these policies with you?

And you mentioned when people are older and less healthy, group insurance can be a better deal. It sounds like the flip side of that is if you are younger and healthier than your average coworker, you might be able to get a better deal on your own.

Now, let's say you bought these policies and you're covered when you die. Is there anything that can happen that could keep your loved ones from getting a payout?

If you're contemplating getting more life insurance and you're automatically offered, how do you decide between going for a supplement through your employer or getting outside insurance? What are the upsides and downsides of these options?

All right. Well, I feel like we have a good handle on life insurance. So let's move on to another aspect of employer benefit plans. And this one has a much grimmer name. It's called accidental death or dismemberment insurance. So how does this work and who should consider it?

Sean, this is so incredibly important and too many people ignore it. Insurance of all kinds is meant to protect you from costs you couldn't easily pay out of pocket. But too many people who need certain types of insurance just don't have it. And others get talked into buying policies they don't need, right? Yeah. Absolutely.

And what would make you or your survivors ineligible for the benefit? We talked about life insurance exclusions, and I assume they're similar here?

That sounds like a lot of restrictions. Is this actually a substitute for life insurance?

Ryan, you've given us so much great information. Thank you for taking the time to talk with us about these issues today.

There's a reason life insurance salespeople don't have, shall we say, the most positive of reputations. But that doesn't mean you should stay away from the concept altogether. Now, we're not here to tell people what to do, but I think it's worth hearing the case for having some sort of financial backstop if that thing you think will never happen to you happens to you.

And that's because you love them and you don't want to leave them in the lurch.

Yes. If you do need life insurance, one of the most important things is to make sure that you have enough. Insurance agents can make whole life sound pretty awesome, but it's definitely not for everyone, and the expense could tempt you to skimp on coverage.

It may help my fellow maximizers to know that there probably isn't one perfect solution. You do the best you can, and if you find out there's a better choice, you can make it next year.

Well, that's what we're covering next, John. Pay close attention to our fellow nerd, Tina Orem, who's here with some specifics on those savings vehicles. Tina used to cover taxes for NerdWallet. She's now an editor, but she agreed to recap what she knows about tax-advantaged savings accounts for us. Tina, it's so great to have you back on the show.

So we just spent some time with Kate talking about the basics of choosing a health plan, but we wanted to bring you on to talk about a couple of options that are also offered by many employers, and they're essentially savings vehicles. So explain for us the overall purpose of FSAs, which are flexible spending accounts, and HSAs, which are health savings accounts.

Sean, did you just yay open enrollment? Sarcastically. Oh, okay. Well then, yes. Yay. And I'm confident in predicting that nobody actually says that at this time of year.

Oh, so true. So how do you get these goodies?

Well, let's take a more detailed look at FSAs first. Those are the flexible spending accounts. What are some of the specific elements of these kinds of savings vehicles?

Okay.

Always good.

Let's get into the nitty gritty of how they actually work. I think most people get something that looks and operates like a prepaid card, don't they? How does the money get on those cards?

And sometimes it's through reimbursement, though, right?

Okay. And this is the part of our healthcare system that sends people scurrying to drugstores across America in late December because of that use it or lose it by the end of the calendar year. Can you give us some tips for avoiding that?

John, you're spinning out, as we all want to do during open enrollment. And for those who aren't following along too closely, open enrollment is that time of year, typically anywhere from October to mid-December.

Yeah, you're probably right. Let's move on to HSAs, which are health savings accounts. What can we use these for and how do they work?

Yes, it is. Okay. So what's the catch?

when people in employer-sponsored health plans and public and private health plans, including through Affordable Care Act exchanges, get to choose their individual and family plans for the coming year. Right, and we are smack in the middle of that right now. It's kind of like tax time in April and sometimes just as confusing.

And we should say that high deductible health insurance plans are not a good fit for everybody. So no matter how cool the HSA is, it might not be the best choice for you. Right. Okay. So some companies won't just provide the opportunity to have an HSA. They'll actually contribute to it, right?

Okay. Is there anything you can't use this account for?

OK, I wanted to circle back to talking about this as a tax and investment vehicle on top of being a health care option. How does the tax stuff work here?

Okay, so you have to keep good records, but you generally don't have to worry about having a balance in an HSA at the end of the year.

Okay, good. Tina, thanks again for joining us. We really appreciate it.

So Sean, are you an HSA or an FSA kind of person?

I've been both, but our family occupies that middle ground where we use a fair amount of healthcare, but really not enough to where the math makes sense for a high deductible plan. I miss being able to stuff money into that triple tax advantaged account, but a lower deductible plan with an FSA really is a better fit for us.

Well, first of all, networks and plans change. If you don't review them, you may end up with something different, even though you assumed it would be the same. Covered drugs often change as well. And Sean, most of us don't have exactly the same lives we did a year ago.

Our health, our financial circumstances could be completely different or even just mildly different, but enough so that our current plans won't do what we need them to do. So take the time, review your options.

Then you get to do twice as much math, at least. Yay! Unfortunately, there's no one size fits all advice here either. Maybe one plan is clearly better. So you sign up for that. Or maybe you put the kids on your plan and your partner sticks with their own. Or maybe you don't have a lot of choice. If somebody is on Medicare, for example, they can't add a spouse or dependent.

Exactly right. And we as a populace are not too good at making the right choices. In one study, more than 80% of the employees at a Fortune 100 company picked the wrong health insurance plans. They went with low deductible options that ultimately cost them more.

So the family needs to find other coverage. All right. Well, Liz, tell us what's coming up in episode two of this series. Next time, we're going to look at all the different kinds of other insurance you might have on offer during open enrollment, from disability and life insurance to critical illness coverage.

And that's all we have for this episode. Do you have a money question of your own? Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Visit nerdwallet.com slash podcast for more information on this episode and remember to follow, rate and review us wherever you're getting this podcast.

And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Another study found that inertia, sticking with the same plan rather than evaluating the options each year and choosing a better one, cost workers an average $2,032 annually.

So get a cup of coffee and get out your plan options, and we'll see if we can help you sort it all out. Today, it's healthcare. Episode two, we're covering all kinds of other insurance, including disability. And episode three, we're talking about vision, dental, pet care, and more. I mean, how bad can it be? We're talking about benefits.

Well, we're going to lead off with health insurance because that is the biggest challenge for most people in terms of the breadth of options to choose from and the math they have to do to figure out what's best for them and their families. And for this, we're going to talk with our fellow nerd, Kate Ashford.

She's written about health insurance for years, and she's a certified senior advisor who covers Medicare and retirement topics for NerdWallet. Kate, so glad you could join us on Smart Money.

So when you hear the words open enrollment, what happens in your brain?

Yeah, for me, it's basically a trigger to run away to Europe for a month or two to avoid the whole thing. But all jokes aside, this is serious business and incredibly complex, so let's start with some of the real basics. We hear these terms all the time, but it doesn't mean that we really understand them. So Kate, how about explaining premiums and deductibles for us?

And this is really like a seesaw, right, in that most plans either have higher premiums that you pay monthly or high deductibles that mean you're paying a potentially higher bill if you end up using a lot of your insurance. So how do individuals and families go about deciding which part of the seesaw they should be on?

This always feels like such a hard thing to figure out because you're almost being asked to predict what's going to happen to your health in a given year. If you feel like you're healthy, you might take the higher deductible thing thinking you'll never have to pay it.

But then you have some sort of a health crisis or an accident and suddenly you're on the hook for all of it before the insurance kicks in. Is that a fair assessment?

Yes. And also, if you would put off care because you have to pay for it, that's another reason not to use a high deductible plan. Absolutely. I know this is a thing. It's just something that psychologically, if you could be prone to that, then maybe get the lower deductible plan and make sure you're getting the health care that you need.

Yeah. We'll get to some of the details about health savings accounts in the second half of the show because you mentioned those. But let's talk about the kind of second tier sort of decisions. which is looking at co-pays, co-insurance, and out-of-pocket maximums. All of these have potential to show up in a variety of plans that are offered to most people.

So give us a rundown of what they mean, especially co-pay versus co-insurance.

And how do you go about evaluating where these fit into your decision making? I mean, high deductible with low co-pays, low deductible with high out of pocket. We're doing a lot of math here, aren't we?

Oh, and I was really looking forward to rewatching Arcane. Anyway, speaking of Arcane, let's move on to the alphabet soup of healthcare options. PPOs, HMOs, HDHPs, C3POs. Let's take them one at a time. What is an HMO and what are some of the advantages and disadvantages of choosing this?

Well, that's good to know. Okay, same question for PPOs. What are they and who might they be right for?

Okay, and finally, the HDHP. This might not be quite as familiar to listeners. So what does it stand for? What is it? And what are those advantages and disadvantages?

Okay, let's run down some of the key factors to consider when you're making these plan decisions. What are the main questions that individuals and families need to ask themselves when they're sorting through all their options?

And one last question, Kate. One of our producers was talking about what you might call the overabundance of options when you go through the Affordable Care Act exchanges. Those are also known as Obamacare exchanges. And you're trying to choose an individual health plan. She calls it overwhelming abundance and not in a good way. So there could be a dozen or more options to choose from.

Do you have any advice on how to start that process?

And this is why we have to take math in high school. Okay. Kate, thanks so much for helping us out today.