By Kathryn Hauer, CFP, EA
Most of us know about — and pay for — common types of insurance that protect us from financial risk. These include health insurance, auto insurance, life insurance, and homeowners or renters insurance.
However, we often forget that we have other types of insurance waiting in the background. You probably don’t pay monthly premiums for these policies, but they’re available when you need them.
If you get hurt on the job, you’re automatically protected by workers’ compensation insurance. You’ll generally receive help with medical expenses and two-thirds of your average weekly wages up to a state maximum, which is $784.03 per week in 2016 in South Carolina, the state where I live. Other benefits are available depending on your injury and ability to return to work.
These benefits are funded by your employer and kept in place by the government. Federal workers are covered by a program administered by the U.S. Department of Labor. Most other workers are covered by workers’ compensation agencies run by the state in which they live. In South Carolina, for example, this program is run by the South Carolina Workers’ Compensation Commission.
If you’re hurt at work, your employer must provide immediate medical attention and file a report with the state workers’ comp commission. If your employer doesn’t file, you can do it yourself. Then your state commission will make sure that your employer pays your benefits as directed by law.
Workers’ comp only covers you when you’ve been hurt on the job. But if you can’t work because you’re sick or were injured under other circumstances, disability insurance protects you from financial hardship by paying a portion of your wages. This can help you replace lost income and pay medical expenses.
Short-term disability pays partial wages for a short time. Long-term disability pays wages or partial wages indefinitely.
Many employers offer company-paid or low-cost group short-term and long-term disability. If your company offers this benefit, it’s probably worth opting in, even if it means paying a little bit each month. You can also buy your own plan if your employer doesn’t offer coverage or the benefits you want.
Unemployment insurance is another benefit you might not know you have. You’ll qualify if you become unemployed through no fault of your own and meet certain other eligibility requirements. The program is administered by the Department of Labor, in conjunction with the states.
The maximum length of time for which you can receive unemployment benefits depends on your state, but in 2016, it’s no more than 26 weeks. In South Carolina, the maximum is 20 weeks, and you can receive no more than $326 per week, no matter how much you were making before you were laid off.
You need to apply for benefits through your state unemployment office, and you usually need to show evidence that you’re searching for a new job in order to continue to collect. Keep in mind that you don’t need to be unemployed for a long period of time to qualify, and you can start and stop benefits if you pick up short-term work one week and have none the next. As soon as you get your layoff slip, go to your state unemployment office’s website and start the process.
Note that employees who are fired for cause generally don’t qualify for unemployment benefits. If you feel you were fired unfairly, provide your unemployment office with documentation to support your claim.
Bank account insurance
If you keep money in a bank or credit union, it’s insured by the Federal Deposit Insurance Corp., an office of the Inspector General. This benefit insures up to $250,000 per owner, per FDIC-insured bank and per ownership category, against fraud, default or bankruptcy by the bank.
Stocks and money market accounts aren’t FDIC-insured. They’re generally insured by the Securities Investor Protection Corp. for up to $500,000 should your investment house go bankrupt or commit fraud. It doesn’t insure against losses you incur because of investment choices or bad advice from a broker. Note that the SIPC isn’t a government agency; it’s a nonprofit membership corporation funded by mandatory assessments on broker-dealer member firms.
The payments and benefits you receive from Social Security retirement insurance can form an important part of your financial protection system as you age. As you well know, Social Security is a federal program funded by taxes on your paycheck. When you decide to claim your benefits — often around the time you retire — you’ll get a monthly payment until you die.
You have likely paid into Social Security your entire working life, and the benefits you’ll receive will be based on your highest-paid 35 years of work. Those earnings are adjusted or “indexed” to account for changes in average wages since the year the earnings were received. This adjustment makes sense because inflation makes a $20,000 salary earned in 1965 equivalent to a much higher salary in 2016.
If you delay starting your benefits — up to age 70 at the latest — you’ll receive a higher monthly amount. For example, a person who is entitled to a Social Security retirement benefit of $750 per month at age 62 could receive $1,000 per month by waiting to collect until age 66 and $1,320 per month by waiting until age 70.
You never know how many years you’ll collect benefits, so deciding when to start Social Security payments is a gamble. If you don’t claim until 70 and die six months later, you’ll have missed out on benefits — but if you claim at 62 and live until 100, you might wish you’d held out for a higher amount. Consider working with an advisor to choose a claiming strategy.
To check your projected Social Security retirement benefits, view your earnings history and research claiming strategies, set up an account on the Social Security Administration website. Simply enter personal information about yourself, including answers to questions that only you are likely to know.
It’s easy to factor benefits that you pay for each month into your financial planning. But don’t forget benefits you don’t directly pay for; they can still help you stay on track financially.
Other benefits you might receive — pensions, union benefits, military benefits, welfare and food stamps — aren’t technically insurance, but they function as such because they protect you financially, minimizing your risk and increasing your monthly cash inflow.
No amount of insurance can protect us from all harm, but it’s good to know that we can rely on help if we need it.
Kathryn Hauer is a certified financial planner and fee-only investment advisor with Wilson David Investment Advisors in Aiken, South Carolina.
This article also appears on Nasdaq.