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Personal Finance Chapter 9

Personal Finance Chapter 9 - baj01275_c09_218-246 02:09am...

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Starting Point Go to www.wiley.com/college/bajtelsmit to assess your knowledge of health and disability insurance. Determine where you need to concentrate your effort. What You’ll Learn in This Chapter Types and features of health insurance plans Disability income needs Disability income insurance policies After Studying This Chapter, You’ll Be Able To Evaluate the types of health insurance plans and understand their features Calculate your disability income needs and select appropriate insurance Incorporate employer-sponsored retirement plans in your financial plan 9 HEALTH AND DISABILITY INSURANCE Protecting Your Health baj01275_c09_218-246 2/09/07 02:09am Page 218
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9.1 EMPLOYEE COMPENSATION AND HEALTH INSURANCE 219 INTRODUCTION Because salary and employee benefits can differ radically between employers, don’t take a job without carefully considering the value of the benefits being offered. Remember, employer-provided benefits may make it easier to achieve your other financial goals and to avoid financial crises caused by health and dis- ability risks. In this chapter, we discuss how to evaluate your needs and choices in health insurance and disability insurance. (Life insurance is covered in Chapter 10.) Don’t underestimate your risk of needing disability insurance at some point. 9.1 Employee Compensation and Health Insurance When weighing job offers, the most obvious component of a package is, of course, the salary or hourly wage. But many jobs offer much more in the form of employee benefits, sometimes called fringe benefits. These may include tan- gible benefits, such as various types of insurance or retirement contributions, as well as intangible elements, such as flexible hours or a pleasant working envi- ronment. Take into account all the components of an employment opportunity and estimate the value of the total package before making your decision. In this section, we identify the different types of benefits you might expect and explain the advantages of group provision of certain types of benefits. 9.1.1 Why Benefits Are Preferable to Cash Compensation Employee benefit packages commonly include vacation and sick days, various types of insurance (health, dental, vision, disability, and life), and retirement plans. Whether your employer will offer any or all of these options depends on the employer’s size, the type of employment, and competitive factors. Benefits are sometimes completely paid for by the employer, in which case they’re said to be noncontributory. If, instead, you’re required to pay some or all of the cost yourself, the benefit plan is called a contributory plan. Some employers offer a cafeteria plan, in which they provide a sum of money to be used for benefits but allow you to choose the benefits you need from a menu. Although some employers offer benefits to employees for purely altruistic
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