2 Insurance Policies You Won't Need In Retirement (And 2 You Might)
You spent your career saving and building your nest egg. Along the way, you used various types of insurance to protect and guard your wealth against the unthinkable. As you transition into retirement, your financial needs change, and it becomes important to evaluate your insurance coverage. You may no longer need certain policies you had in place in your working years.
Old insurance could no longer be appropriate for your needs as a new stage of life approaches. Seniors should use caution while discontinuing their insurance, though.
Consider your current insurability, unique situation, and personal objectives.
Here's how to evaluate which insurance coverage you require and which you can forgo once you retire.
Two Types of Insurance Policies You Can Probably Go Without In Retirement
As a retiree, your insurance needs may look different than in previous years. Let’s review a couple of policies that may be unnecessary for your golden years.
1. Life Insurance
Odds are, while you were working, your family depended on you or your spouse's income (or both). That income helped you build your nest egg, and you likely used life insurance to protect against losing it. But now that you’re in retirement, things could look different.
Ask yourself,
- Do you have any dependents?
- Does anyone rely on your income for survival?
- Are your debt levels rather high and unmanageable?
Probably not in retirement. Married couples can usually plan for retirement without retaining or getting new life insurance coverage.
One caveat; know what kind of life insurance you have: term or permanent, because permanent will have a cash-in value you’ll need to consider (cashing out can cause a complex taxable event).
2. Disability Insurance
The primary benefit of disability insurance is replacing your income should you be unable to work. In retirement, you're likely not working full-time (and if you are working, it’s likely not funding a majority of your lifestyle), so this insurance is no longer relevant. If you have an existing individual policy, you may be able to cancel it.
You can use your retirement benefits, assets, or perhaps long-term care insurance instead of relying on disability coverage, even if you cannot work due to an injury or disease.
Two Insurance Policies Worth Keeping or Potentially Getting As A Retiree
Insurance doesn’t become moot just because you’re in your golden years. Some policies like medical insurance will be relevant at all junctures of your life, especially in retirement.
Plus, there are two more policies you may want to keep an eye on.
1. Long-term Care Insurance
Medicare does not cover continuous custodial care in a nursing home or assisted living facility. And Medicaid coverage doesn't begin until you’ve drained practically all your assets.
However, long-term care insurance may cover care at home or in a facility. While it can be extremely costly, the price of these plans suddenly doesn't seem as high compared to a five-, six-, or seven-year stay in a nursing home.
The average cost of a semi-private room in a nursing home facility in 2021 was over $7,900 per month. That nets out to over $92,000 per year! So you can start to see how these costs could drain your savings quickly without protection.
Long-term care insurance also gives you control over the quality of care you want and deserve. While long-term care may be a hard reality to face, you want to be cared for at the highest possible level if the time comes.
But Long-Term Care Insurance Isn’t Perfect
There are disadvantages to long-term care insurance. Premiums can be expensive, and rates are only fixed for a short time, so they could go up in the future.
There are also several caveats. Long-term care insurance has an elimination period, or a predetermined period of time between a health incident and the receiving of benefit payments, much like any other type of insurance. Accordingly, if you stay in a nursing home for two months, there's a chance you won't receive benefits for the duration of your stay, depending on your plan.
Before providing coverage, the majority of long-term care insurance carriers require you to pass a physical, and they tend to turn down about 15% to 20% of applicants. Additionally, any pre-existing health issues, like high blood pressure, diabetes, etc., may increase your premium.
If you want to prepare for long-term care without insurance, consider saving extra in an HSA or earmarking a portion of your nest egg for this potential expense.
2. Umbrella Insurance
In addition to the liability protection that comes with auto and home insurance, an umbrella policy also offers additional liability protection.
Umbrella, or liability, insurance is a broad term that describes the coverages to help protect you or your business if someone files a lawsuit or reports a claim against you or your property.
For example, your mail carrier gets bitten by your dog and files a claim for her injuries. These policies can be helpful to anyone, regardless of wealth.
Non-Negotiable: You Need Medical Insurance
The most obvious insurance retirees should have is health insurance.
The majority of seniors over 65 are eligible for Medicare. Seniors still employed may be eligible for benefits through their jobs, and if your workplace plan offers superior benefits, it may make sense to use it instead.
While it does provide basic health protection, Medicare doesn't always pay for all medical expenses. You will probably need a supplemental plan, such as Medigap, Advantage, and/or Part D coverage, to pay for things Original Medicare does not fully cover.
To avoid paying too much, consider the total cost of care against what you need from a policy. The total cost of care includes your premium, deductible, copay, coinsurance, etc.
How Can We Redirect Those Insurance Dollars To Support Your Needs In Retirement?
Insurance is a tool to protect your money and is an important part of any financial retirement strategy.
Old insurance could no longer be appropriate for your needs as a new stage of life approaches, and you can better use the funds you were using to pay insurance premiums. Maybe you can add more to your cash flow, stash away more in your long-term investment buckets, or redirect it to more relevant insurance like a Medigap health plan. You could also use the money for fun, a new hobby, or traveling.
At Step by Step, we specialize in helping you live out your dream retirement. Take the next step to a clear retirement future and schedule your strategy session.