Everything is expensive these days.
Mortgage rates are sky-high, at least compared to recent years. The same goes for auto loans, credit card interest — even everyday purchases after a prolonged period of high inflation.
However, open enrollment for insurance can be a particularly confusing time. That’s especially true if your company offers supplemental insurance.
What should you elect to accept and pay for during open enrollment? And what should you refuse?
Should I Accept Voluntary Benefits Such As Supplemental Insurance?
My company just added voluntary benefits in the form of supplemental insurance. It’s pretty affordable. Should I accept it?
That’s what a listener recently asked money expert Clark Howard.
Asked Geralyn in California: “It’s annual open enrollment time for my annual benefits through my employer. This year they have added voluntary benefits such as accident coverage, critical illness coverage, and hospital indemnity coverage.
“I have medical insurance, so are these extra benefits worth the extra cost? They would each cost approximately $10 per biweekly pay period and cover my whole family.”
Clark compares supplemental insurance to buying warranties on retail items such as laptops. For the record, Clark considers those warranties to be a “total waste of money.” But occasionally, someone will break their laptop weeks after buying it and such a warranty will protect their purchase.
Those types of anecdotal stories don’t change the math.
“I don’t like these ancillary benefits because you’re spending money that you may need for everyday expenses in your life,” Clark says. “The overall math says buying these kinds of narrow benefits [doesn’t make sense].
“This is a way of you covering a lot of what you would normally have to pay for out of pocket. If you become ill and have significant medical expenses, you’d be like, ‘This is great. I’m paying $10 biweekly for this.’
“But the reality is how often have you ended up in a critical care situation? You think of all the money you pay over time for this supplemental type insurance. I recommend broad insurance policies, not narrow ones.”
When considering insurance, the major policies you need are health insurance, life insurance and disability insurance, Clark says.
Supplemental insurance isn’t a scam and isn’t expensive. But you shouldn’t buy it because someone sells you on it at work.
And in many cases, the limited scope of supplemental insurance policies means they end up not being useful or are redundant to your regular coverage.
Injuries or illnesses can cause temporary financial challenges. It’s probably better to build a good emergency fund to protect yourself against that (and a host of other things like car trouble). Building those funds is going to be more difficult if you’re spending extra money on supplemental insurance.