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Take advantage of employee benefits

They used to be called “fringe” benefits, but over the years, employee benefits like health, dental and vision insurance, as well as retirement plans, disability protection, health club discounts and legal services, to name a few, have grown in importance and also in complexity.

How can you make the most of employee benefits available to you? Here are some tips for knowing how.

Health insurance

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If you receive health insurance as an employer-paid or partially paid benefit, be careful about deadlines. There is usually a limited period of time set by the insurance company — often 30 days — when a new employee can register for health insurance. If you miss the deadline, you have to wait for the annual open-enrollment period before you get another chance, which could be as much as a year away.

Many companies offer a choice of health insurance plans. They may include a health maintenance organization, or HMO; a point-of-service, or POS, plan; a health reimbursement account, or HRA; or a health savings account, or HSA — all with different levels of financial commitment by you. How do you choose?

Jim Farley, CEO of J.P. Farley Corp., a benefits administration firm in Cleveland, says many people pay more than they should. “If you’re healthy, then pay the least amount of premium,” he says.

He estimates that 15 percent of employees use 85 percent to 90 percent of the health care dollars.

This means 85 percent of us are healthy enough to spend less on health insurance in a normal year. Says Farley: “You should buy the least expensive health insurance option.”

Disability insurance

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Many companies offer private short-term and long-term disability insurance that provides partial replacement of your income if you are too ill or injured to work. If you pay the premiums on your disability insurance with your own after-tax money, then any benefits you might receive would come to you tax-free.

On the other hand, if your employer pays the disability insurance premiums, your benefits would be subject to income tax. If you feel pretty sure you’ll never need to draw on disability insurance, let your company pay the premium. But if you’re concerned that you might use disability insurance someday, it would be reassuring to know that the payments you receive are yours to keep, without the burden of taxes, Farley says. Your own comfort with risk may be the deciding factor here.

Retirement plans

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Don’t miss out on a match. If your company offers a 401(k) or 403(b) retirement plan, ask whether the employer will match the money you save.

Having a portion of your salary withheld from each paycheck and deposited into a tax-deferred retirement savings account is generally a good idea even without an employer match. But if your company matches the money you save, it’s like free money.

“This is the biggest mistake I see people make,” says Sarah Westmoreland, finance associate at a California independent school. “They somehow think joining the 403(b) is costing them money, when it’s actually getting them more.”

Flexible spending accounts

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Another way to save tax money is by having a flexible spending account. Under these voluntary, employer-sponsored plans, you agree to have pretax money withheld from your paychecks. When you incur a qualified expense such as medical care, dependent care or transportation, you get your money back. Although they may sound a little complicated at first, these are well worth the trouble.

Deanna Smith, benefits specialist at Grey Healthcare Group in New York, says, “A lot of people don’t understand the benefits of pretax, especially if this is their first job. In my new-employee orientation, I show an example of how a flex plan works, and I say, ‘See, this way you have more money.’ Then they say, ‘Oh, more money!’ And then they get it.”

“Not nearly enough people sign up for flex plans,” benefits administration CEO Farley says. People worry about the use-it-or-lose-it rule, he says. In flexible spending accounts, any money you put into a flex plan and don’t use within the specified time period is forfeited. Still, the tax savings are so advantageous that you usually come out ahead even if you fail to use some of your funds.

“It’s a no-cost benefit,” says Farley.

Life insurance

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Once again, deadlines are important. Smith says that life insurance companies often allow new employees to add their dependents and to buy supplemental life insurance for themselves without underwriting, but only for a brief period. Once that’s expired, you have to undergo an investigation of your medical history before you can buy.

“I’m seeing a lot of people who are used to being part-time or freelance who now want full-time jobs,” says Smith. “It’s because they need the insurance and other benefits. So it’s important to be informed. And if you don’t understand something, ask.”

Additional information

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For more information on insurance, check out these stories at Bankrate.com:

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