3 Ways to Hedge Against the Unexpected This Annual Enrollment Season

When choosing your insurance coverage this year, don't just blindly check the same old boxes. Put some thought into how you can best protect yourself with some options you might not have considered before, including disability, accident and hospital insurance and HSAs, too.

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It’s almost that time of the year again — annual enrollment (or open enrollment) season. If you’re like most American workers, you probably aren’t going to give it much thought until the last minute. And when you finally do make your selections, you’ll likely zero in on health insurance and simply “check off last year’s boxes” when it comes to all your other workplace benefits options.

While checking off last year’s boxes might save you time (and a headache), it could cost you in the long term by making you or your loved ones financially vulnerable if the unexpected happens.

Here are three ways you can protect your paycheck, your savings and your loved ones this annual enrollment season.

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1. Insure your income.

Insuring your car is a no-brainer, in fact it’s mandatory in most states (with a couple of notable exceptions, including Virginia and New Hampshire). So why not insure one of your most valuable assets: your ability to work and produce income? One way to do this is through disability insurance.

The workplace is the most prevalent channel through which to access disability insurance, with 63% of employees reporting that their employer offers it, according to Prudential’s Financial Wellness Census (opens in new tab). Yet 30% of employees who have access to disability insurance at work turn it down (opens in new tab).

Even if your employer provides short-term and long-term disability insurance at no cost to you, you still might want to explore whether you need to buy supplemental disability insurance to increase the benefit amount you receive, depending on your situation. Why? Most employer-paid disability insurance only covers about 60% of your income, and the chances of you having a disability may be higher than you think. One in 4 adults will become temporarily disabled at some point before reaching retirement age. The top reasons (opens in new tab) are also less extraordinary than you might think: musculoskeletal issues, cancer, injuries, cardiovascular problems, mental disorders and pregnancy.

You might even find this year that your employer automatically enrolls you in a supplemental disability insurance plan because last year the Department of Labor clarified that employers have the option to automatically enroll their employees in insurance plans, including disability, life, accident and critical illness — just as they already do for retirement plans. Remember you always have an option to opt out if you don’t want the additional coverage this year.

2. Assess what has changed in the past year and what is likely to change soon.

Did you score a new job or promotion? Get married or divorced? Did you welcome a new baby? Buy a new house? Is college on the horizon for your teen? These important life milestones not only affect your long-term financial well-being, but also your short-term cash flow, which can impact how much you can spend on your benefits.

Of course, most people are familiar with the importance of financial protection in the event of losing a family breadwinner. You may want to re-evaluate your level of life insurance coverage should you or your spouse or partner pass prematurely. Consider how much your family would need to maintain their current lifestyle, pay off the mortgage, and put children through college.

You’ll also want to make sure you re-evaluate your beneficiaries for all of your insurance coverage. For example, if you divorced, you’ll want to make sure you remove your ex-spouse as the beneficiary on all your policies and if you got married, you’ll want to do the opposite.

3. Consider managing your out-of-pocket medical expenses.

With hospital insurance

With rising medical costs, deductibles that can range from $3,000 to $8,000 for most families, and the average cost of a hospital stay now at over $10,000, hospital insurance (also called hospital indemnity) might be worth considering. While not as common as other kinds of supplemental insurance (only 33% of employees say their employer offers it), 28% of employees wish they had it, according to Prudential’s Financial Wellness Census. Payouts can be used to cover health insurance deductibles, co-insurance and any other out-of-pocket expenses that stem from a hospital visit.

One additional advantage is that the payments can be used for whatever purpose the beneficiary chooses, because unlike health insurance, hospital indemnity plans are not tied to specific medical services. Instead they pay policyholders when a specific event (i.e., a hospital stay) occurs. Hospital insurance is typically offered at the workplace as a voluntary offering, meaning it is 100% funded by the employee for as little $10 a month.

With a health savings account

Health savings accounts (HSAs), a benefit that is used to supplement health insurance, are something that most workers are pretty familiar with. If you are enrolled in a high-deductible health plan, you may be able to contribute to an HSA. The advantages of an HSA include a triple tax benefit and the fact that funds can be rolled over year to year, even into retirement — providing you with an opportunity to fund current out-of-pocket medical expenses and future medical expenses in retirement.

The contribution limits for the 2020 (opens in new tab) enrollment season are $3,550 for self-only coverage and $7,100 for family coverage (up from $3,500 and $7,000 in 2019). And if you are lucky enough to have an employer that will contribute to your HSA, you are essentially leaving money on the table if you don’t sign up for it. (For more on HSAs, see Use an HSA to Boost Your Retirement Savings.)

With accident and/or critical illness insurance

An accident or serious illness, like cancer, is not only devastating for a family from an emotional standpoint, but it can also be financially crippling. Typically, health insurance will only cover some of the medical bills resulting from an illness or accident. Bankruptcies resulting from unpaid medical bills will affect nearly 2 million people this year, and nearly 10 million adults with year-round health insurance coverage will still accumulate medical bills they can’t pay off this year, according to 2019 research from NerdWallet Health.

Accident insurance and critical illness insurance pay claimants a cash benefit for every covered injury or serious illness, regardless of what is paid by your health insurance. Benefits are paid directly to you to cover whatever expenses you need. These expenses can include medical co-payments, deductibles and out-of-pocket costs, child care and household expenses during your recovery, travel to a treatment center, and modifications to your home stemming from your injury.

As you prepare to make your annual enrollment season selections, it’s important to remember that the price you will ultimately pay for benefits likely will be substantially lower than what you would pay if you purchased it outside of the workplace, and in some cases the employer will pay a portion of the cost for you. Workplace benefits are also convenient to purchase through payroll deductions.

Talk to your HR department to see how you can take advantage of your benefits package this fall.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Vishal Jain
Head of Financial Wellness Strategy, Prudential Financial

Vishal Jain is the Head of Financial Wellness Strategy and Development for Prudential Financial. He is responsible for defining Prudential's financial wellness strategy and partnering with a wide range of stakeholders across Prudential in developing and delivering financial wellness capabilities and solutions to the market. For more information, please contact Vishal at vishal.jain@prudential.com.