by Brian Swerdlow
As you transition to retirement, you might find yourself living in a different house in another state or country. You could be engaged in hobbies you never had time to do when you were working or might decide to become an entrepreneur and build your own company. Once you stop working, you could choose, like a growing number of people over 65, to go back to school to learn a new trade or skill. However exciting things may be, though, you don’t want to forget something less exciting, but nevertheless essential, your insurance needs.
When people retire, paychecks are a thing of the past. Instead, even the best-planned seniors or those lucky enough to have government or private pensions must be careful how they spend their money. That’s why I recommend my clients sit down with me to evaluate their insurance needs in retirement.
With a new season of life about to begin, my retiree and pre-retiree clients often discover that their old policies no longer meet their current needs. Changing or eliminating insurance that you don’t need at this life stage is one way to lower monthly expenses. However, before you do so, it’s wise to consult your financial advisor or insurance agent to help you make the right decisions. You and your advisor should consider factors such as your current financial circumstances, money goals, risk tolerance and future insurability before making any changes to your insurance.
Although there is no one right way to plan for insurance needs when you stop working, there are some basic guidelines to you can incorporate to help you decide which of your policies are worth keeping and which may be a waste of money.
First, let’s look at what I consider must-have insurance policies for retirees.
Supplemental coverage for Medicare. Medicare, as you know, is a federally-run healthcare safety net for American seniors. It provides no-cost hospital insurance and low-cost medical insurance for qualified seniors over age 65. However, contrary to what many seniors believe, Medicare does not pay 100% of a person’s healthcare expenses. It is one of several government programs containing potentially costly gaps.
Depending on your medical situation and the type and frequency of services you need, Medicare gaps can be expensive. Many seniors who’ve spent a lifetime being frugal and responsible with their money find themselves upended by uncovered medical expenses. That’s why nearly every American retiree has some type of supplemental insurance to help fortify their Medicare coverage. Medicare itself can be frustratingly complicated and confusing. When you add an often bewildering array of supplemental plans to the mix, it’s temping to want to avoid thinking about Medicare at all.. But, don’t! The last thing you want when you stop working is a pile of doctor and hospital bills hanging over your head. Be sure to find a trustworthy, competent Medicare specialist to help you formulate a plan for what is likely to be your most significant expense in retirement- healthcare.
And, if you decide to quit working before you’re eligible for Medicare, you will need to research and purchase some type of affordable private health insurance to bridge the gap. Crossing your fingers and hoping you can make it to age 65 with no medical issues is risky. And, in many states, you’ll be penalized if you don’t have health insurance in place.
Renters or homeowners insurance is another kind of insurance that I typically suggest clients continue to purchase. These policies safeguard your home or apartment against loss and give you liability coverage. If you still have a mortgage when you retire, your lender will almost always require you maintain an adequate amount of insurance. But, once you pay off your loan, you’ll may be tempted to cancel the policy to save money. That decision could cost you a fortune, though. After all, if you have a loss and no longer work, the only place to get money is from your retirement savings accounts.
The good news though, is that your specific coverage needs may have evolved and you might be able to reduce your insurance expenses by making a few simple changes. Meeting with a seasoned risk management professional can help you discover ways to protect your assets while saving money.
Insurance products that could be smart choices for some seniors.
While I consider health insurance and homeowner coverage essential, I have found other insurance products that are helpful to some of my senior clients. If you are retired or about to retire, you might want to check out one of the following:
Travel Insurance
Most financial experts are not enthusiastic about travel insurance. Some even consider travel insurance to be a bit of a rip-off. However, during the “go-go” phase of retirement, which is generally the first five to ten years after you stop working, you might spend a lot of time visiting other places or riding around in an RV. If one of your life goals is to travel extensively after retiring, a comprehensive travel insurance product might make sense. You’ll want to do your homework, however, and find affordable coverage that includes features especially beneficial to seniors, such as emergency medical and medical evacuation services, trip delay coverage, or trip cancellation reimbursement.
Excess liability or umbrella insurance.
An umbrella or excess liability policy gives the policyholder additional liability coverage above and beyond what’s included in a homeowner and car insurance contract. This extra coverage provides another layer of protection for your assets and is surprisingly affordable. You don’t need to drive a luxury sports car or own a mansion on the beach to benefit from an umbrella policy. For example, if you volunteer to sit on a non-profit board of directors, or own a side business, you could be at risk of being named in a lawsuit. Having an umbrella can create more peace of mind and protect your valuable assets from greedy lawyers.
Annuities
Annuities are insurance products that might solve several issues in retirement. For instance, more seniors are living longer and thus at risk of outliving their savings in an extended retirement. An annuity may be helpful in protecting you against such “longevity risk.” Many different types of annuities are on the market, some of them with provisions to help offset nursing home costs or provide your spouse or loved one with additional income when you pass away. Certain annuities can help fill gaps in retirement income by creating streams of guaranteed income to supplement your Social Security or pension payouts. Annuities won’t work for everyone, so be sure to discuss your unique situation with a trusted retirement income advisor.
Stand-along long term care insurance.
Many people don’t realize that Medicare does not pay for ongoing custodial care in a nursing home or assisted living facility. Medicaid coverage only kicks in once someone has depleted nearly all their assets. For many seniors, then, purchasing a stand-along long term care (LTC) policy makes sense. Depending on the coverage chosen, long-term care insurance may pay for care either in a skilled nursing facility, memory care facility or in a person’s home. LTC coverage is expensive, however. But, when you do the math and compare the cost of LTC premiums to nursing home expenses for a five year stay, you usually come out way ahead. Still, unless you purchase special “hybrid” coverage, LTC insurance is a use-it-or-lose-it proposition. If you don’t end up using it, you don’t get your money back.
You can do without these types of insurance
Disability insurance. If you aren’t working at all in retirement, or you work just a few hours at a side gig, you won’t need disability insurance. Disability insurance is designed primarily to protect workers by replacing a portion of income lost if they become chronically ill or disabled.. Generally, retirees who have an accident or illness can use retirement benefits, savings, or perhaps borrow from their life insurance policies instead of purchasing expensive disability policies.
Key man or “buy-sell” life insurance policies. If you owned a business, you may have purchased a life insurance policy on a key employee or manager. This is often done to ensure continuation of the business if a critical team member dies unexpectedly. If you’ve sold your company or closed it down, you no longer need this policy. Often unused life insurance can be sold via a “life settlement’ option. Before you allow any life insurance policy to lapse or be cancelled by the issuer, it’s worth determining if that policy is eligible to be sold to investors. Selling life insurance contracts you no longer want or need could be a way to create some much-needed additional income when you retire.
Bottom line: Although your insurance needs are bound to change when you no longer work, you should not cancel any policy until you’ve done your due diligence. Meet with a qualified agent, accountant, or financial advisor to be sure you understand all the ramifications of making changes to your coverage. Having a strategic insurance plan in place before you retire is a wise course of action.
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