Understanding Your Compensation Package—Your Benefits  

Your compensation package is broken down into two parts—your earnings (view last week’s blog post) and your benefits. There are so many different options for benefits that this blog post can’t cover them all, but we will cover the big ones including retirement plans, health insurance and life insurance.

Retirement Plans

For college students and recent college graduates, retirement plans seem like something that can get pushed off. However, financial planners will tell you the exact opposite.

Depending on the type of organization you are employed with, your retirement plan may have a different name. Different plans include the following:

• 401(k) plan for for-profit employers,
• 403(b) plan for 501(c)(3) organizations like universities, charities and government,
• 457 plan—which is like 401(k) and 403(b) plans, but does not have a penalty for early disbursements,
• Individual Retirement Account (IRA) for individuals who wish to create a retirement savings account plan but don’t have an employer sponsor.

Take advantage of any retirement plan available to you, and especially take full advantage of any company contribution or match. Since retirement plans are so important, there will be a blog post (likely the sixth post in this series) dedicated to retirement plans.

Health Insurance

Health insurance is typically divided into three categories including medical coverage, vision and dental. Again, since there is so much variety in what is covered in your insurance policy, we can’t possibly cover it all. However, here are the three questions to consider when evaluating your health insurance options:

1. What does the plan cover? Would it cover:

• Emergency services
• Hospitalization
• Laboratory tests
• Maternity and newborn care
• Mental health and substance-abuse treatment
• Outpatient care (doctors and other services you receive outside of a hospital)
• Pediatric services, including dental and vision care.
• Prescription drugs
• Preventive services (such as immunizations and mammograms) and management of chronic diseases such as diabetes
• Rehabilitation services

1. How much does the plan cost? There are two methods.

• Premiums—a monthly cost to your plan. Plans are grouped in different levels depending on different combinations and cost sharing.
• Out-of-pocket expenses—a combination of deductibles, coinsurance and copays. This refers to the proportion of your medical bills you will be responsible for when receiving health care.
  • Deductible—the amount you pay every year before the insurance company starts paying its share of the costs.
  • Coinsurance—the percentage of the cost of your medical care that you have to pay (e.g. For an MRI scan that costs $1,000, you might pay 20 percent or $200.)
  • Copay—a fixed dollar amount you pay for certain types of care such as a doctor visit or prescription.

1. Which hospitals and doctors are in the plan?

• Every insurance company has partnerships with providers—the doctors, hospitals, laboratories, imaging centers and pharmacies that have signed contracts. If your doctor isn’t in your network, the insurance company may not cover the expense.

Getting the right health insurance is possible, but it may take time and effort. Don’t wait until something unexpected happens to find the right health insurance plan.

Disability Insurance

Nobody plans for an accident to happen. In the event that an accident does occur, disability insurance can offer income protection if the result of an accident is the inability to work. There are two main types of disability insurance—short-term and long-term. Short-term disability income insurance is designed to pay you benefits sooner and for a shorter period of time than long-term disability income insurance.

Another form of disability insurance is workers compensation. This is a type of disability insurance in the event of an accident at your workplace. All companies that have five or more employees are required to carry workers compensation.

Life Insurance

Life insurance is a protection against the loss of income that would result if you pass away. The named beneficiary, someone that you choose, receives the proceeds and is thereby safeguarded from the financial impact of your passing. While this is a sad topic, it is important to protect your loved ones.

There are two types of life insurance—term and whole life. Term life insurance is set for timespan of year such as 20 years. After those 20 years are up, your plan would come up for renewal or termination. Whole life insurance is coverage until your passing, regardless of your age.

Another for of life insurance is accidental death and dismemberment (AD&D). This is a policy that pays benefits to the beneficiary if the cause of death is an accident. This is a limited form of life insurance, which is generally less expensive.

Additional Benefits

Benefits come in a variety of forms. Other benefits could include flexible spending accounts (FSA), transportation and parking subsidies, professional development support, relocation expenses, vacation, a company car or health club memberships.

If you have any questions or are confused by anything in your compensation package, be sure to ask someone from your human resources or your supervisor. Understanding your compensation package is the first step in managing your personal finances!

Next week, we will discuss the different things you should sign up for and when!

Content adapted from Rob McCalla, CFP® and Linda Lepe, CFP® of the University of Wisconsin Department of Consumer Science and from Investopedia.

For additional reading, check out CALS Career Services.