Are voluntary benefits like pet insurance worth it?

[October 28, 2015]  By Beth Pinsker

NEW YORK (Reuters) - When some 120 million employees start filling out their open enrollment choices this fall, they will be presented with the usual health, dental and vision options. But a slew of other voluntary benefits are now popping up, ranging from critical-illness coverage to pet insurance.

Some group deals your employer will offer are true group discounts. Others merely make it easier for employees to sign up for coverage but provide no real cost savings.

Spotting the difference between a good deal and merely a convenient one requires shopping around to know the market value of the policies you are considering, according to benefit consultants.

"Some of those policies are going to be a perfect fit and valuable, and other things are not going to be useful," says Jennifer Benz, who runs her own benefits firm based in San Francisco.

Here is what you need to know before you sign up:

SUPPLEMENTS MATTER

For employees with a high-deductible health plan, which now accounts for about 25 percent of the workforce, a supplemental policy like critical illness insurance (for cancer and other major illnesses) can be helpful as a hedge, said Karen Frost, senior vice president of health strategies and solutions for Aon Hewitt, a benefits consultant.

"It's a really inexpensive way to fill a gap with high-deductible plans," said Frost, adding that supplemental premiums can run as low as $5 a month and typically do not require medical underwriting.

Many employers who offer high-deductible plans will provide some level of critical illness coverage and also hospital indemnity policies, which cover a flat dollar fee for hospital stays that would defray a person's out-of-pocket costs, Frost added. Then employees can pay extra for higher levels of coverage.

The same applies to personal accident insurance as well as short- and long-term disability policies.

"We recommend accident more than life insurance, especially if you don't have a family," said Frost.

When plans like these are bundled together during open enrollment, workers with high-deductible plans choose them much more than when they are offered other times, with enrollment jumping from around 4 percent to 15 to 20 percent, Frost said.

BROKERS NEEDED

With supplemental life insurance, long-term care insurance or any other complicated product that is typically sold by a licensed broker, employees should definitely talk to a professional before taking the leap.

Rates can vary by company and a person's age, but adding four times your pay to basic coverage could cost in the range of $40 a month. An individual $250,000 "term" policy for a healthy 40-year-old man could cost $36 a month, according to ValuePenguin.com.

Many employers provide individual discussions with a financial professional over the phone as part of their educational outreach. Half of workers offered supplemental insurance at work buy into it, according to LIMRA, the life insurance trade association. "Although it's not the sit-down with a broker, they do get insights," said Frost. For instance, a young single person will need less life, but more accident coverage.

Group life insurance rates may be competitive in the open market. Rates for specialty products like long-term care insurance may not be.

For these, what is called a "group" is sometimes just individual policies packaged together, said Jesse Slome, president of the American Association for Long-Term Care Insurance.

"If you are healthy or married, you might get a better price as an individual," said Slome.

A typical individual long-term care policy for a 55-year-old healthy woman could be $250 a month, according to Genworth, one of the leading providers.

CLUB DISCOUNTS

Your workplace may also be able to help you insure your car, your house and your pet, but do not count on getting the greatest deal. An average pet policy, for instance, averaged $36 a month in 2014, and a group employer discount typically knocked off 5 percent, said Randy Valpy, president of the North American Pet Health Insurance Association.
 

"The convenience of payroll deduction is where those begin and end. Potentially you're getting a discount, but it's not really something I'd consider a generous benefit," said Hall Kesmodel, consultant at Sequoia, an employee benefits firm headquartered in San Mateo, California.

(Editing by Lauren Young and David Gregorio)

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