Should you buy extra insurance at work?

NEW YORK Thu Oct 11, 2012 11:01am EDT

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NEW YORK (Reuters) - Does an office perk count as a benefit if you pay for it yourself? Apparently so, because an increasing number of companies are using so-called voluntary benefits to bulk up workplace offerings.

More companies now offer extra coverage or benefits that workers pay for themselves. They run the gamut from life and disability insurance to vision and dental care, all the way to legal services, shopping discounts and pet care coverage.

About 85 percent of mid-sized companies offer at least one voluntary option, with nearly half offering three or more, according to a 2011 survey by industry-backed research group LIMRA International. Almost half of all companies planned to add more options in the future, according to a similar study by insurer Colonial Life.

That may sound nice, but these offerings are usually made in the context of companies trying to save money, and they put the onus on workers to decide whether they want to buy in.

So far, workers are unconvinced. Participation in life and long-term disability plans remained nearly the same from 2006 to 2010, at 34 percent of workers for life insurance and 24 percent for disability, according to LIMRA.

Employer-offered group plans can be cheaper and more convenient than plans individuals buy on their own. Group plans often carry discounts of 5 percent to 10 percent, as well as the convenience of having your payment automatically deducted from your paycheck.

But they are not necessarily better. Just because a policy is employer-sponsored does not automatically make it the best deal available, says Tom Billet of the human resources consultancy Towers Watson. "Do a little research first."

Smaller benefits like vision coverage or pet insurance aren't very significant; workers can opt in if they can afford the premiums and think it will save them some money around the edges.

But deciding about more expensive benefits -- disability, long-term care and life insurance -- is trickier. Here are some pointers.

LONG-TERM DISABILITY

Group disability coverage usually replaces 50 percent to 70 percent of your salary if an illness or accident leaves you unable to work for three months or longer. Group premiums typically top out at 1.5 percent of your salary, estimates Barry Lundquist of the Council for Disability Awareness. Individual policies can cost three times that.

Even so, private coverage is generally worth the extra money, says New York disability attorney Evan Schwartz. "With an individual policy, premiums are locked in and your policy can't be changed or canceled as long as you are paying premiums," Schwartz says. On group plans, "terms can change on annual basis."

If you change jobs, you can take your privately purchased plan with you; that's rarely the case with workplace group plans.

Furthermore, workplace policies may pay benefits for only two years, and may cut them off even more quickly for mental health or stress-related conditions, says Schwartz.

Group coverage policies also can include offsets, cautions Alan Olson, an employment lawyer in Milwaukee, Wisconsin. That means that before you ever receive your benefits, you must run through other income sources, such as workers compensation or state disability. Buying a private policy without offsets, "can definitely offer a greater return if you actually use the benefits," Olson says.

Finally, if your disability claims are denied, private coverage provides more remedies. Under group coverage - due to the federal Employee Retirement Income Security Act (ERISA), which covers a wide range of employee benefit plans - claimants must go through a lengthy appeals process before they can sue. ERISA also prohibits claimants from receiving jury trials. "That is one of the most powerful tools you have against an insurance company, and you're giving it up," Schwartz says.

Several online tools can help employees compare their company's disability offering, including MassMutual's Disability Benefits Benchmarking Survey (here).

LONG-TERM CARE INSURANCE

If you think you want long-term care insurance, you may not have many choices beyond buying it at work - many carriers have stopped offering it privately, and some are not offering group plans anymore, either.

"You absolutely need to be sure, even with group coverage, that you're buying from an insurer you know and trust," says Frank Darras, a California-based disability lawyer. "What good is cheap insurance if there's no one to file a claim with when the time comes?"

Major carriers that are no longer selling new policies have said they would honor existing coverage but several smaller outfits have gone out of business. States have stepped in to aid existing claimants but not future ones.

Policies can provide financial lifelines for the 70 percent of Americans over 65 who the U.S. Department of Health and Human Services says will require long-term care like assisted living at some point in their lives.

Employees who are already dealing with chronic medical conditions will sometimes find it easier to qualify for group coverage than an individual policy.

Fine print to consider: What is the daily benefit? Do I get to select where and when nursing home care is covered? Does the policy include home healthcare or coverage if a family member is providing the care?

Unlike life or long-term disability insurance, long-term care insurance stays in place after you've retired or have left a job, but there's no guarantee that the premiums will stay affordable once you've left your group. For that matter, there's no guarantee they will stay the same even while you're at your job.

Healthy employees, on the other hand, are likely to find buying on their own more affordable. Spousal discounts, for instance, are common on private policies but not workplace ones.

Another downside: Group long-term care policies also are subject to the same federal laws as long-term disability in terms of appealing claim denials detailed above.

TERM LIFE INSURANCE

Life insurance is one benefit that many employers still pay for - 44 percent of employers did in 2010, according to LIMRA - and if that is the case, there is almost no downside to signing up. These policies, usually equal to about one year's salary, are essentially free money. And they don't require medical examinations to qualify - especially important to anyone with a pre-existing condition.

If you want more coverage than your company is providing for free - or if you worry that you'll need coverage after you leave your job - shop around, says former Vermont insurance commissioner and Consumer Federation of America expert James Hunt. "You can often find better deals on the outside," Hunt says.

(This is part of a five-story package on employee benefits and open enrollment season. The author is a Reuters contributor and the opinions expressed are her own.)

(Editing by Linda Stern, Jilian Mincer and Steve Orlofsky)

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