If you are nearing retirement, you may be wondering what type of insurance you will need once you stop receiving work benefits and pay. If you plan to quit working altogether, you won’t need insurance to cover your earned income after retirement. So, the type of insurance required after retirement depends on each person’s unique financial situation.
Here are some general principles to follow when it comes to being adequately insured after retirement:
- Be sure to get liability coverage to avoid the risk of losing your money due to an unexpected lawsuit. This includes happenstances such as, the possibility of a traffic accident, injury dog bite, or other events. Financial planners recommend maintaining coverage of at least the total amount of your net worth, but optimally, 2 times your net worth.
- Although liability may already be a part of your insurance coverage on your home or auto policy, the coverage is oftentimes too low. Consider raising the coverage levels, to ensure adequate coverage.
- Your retirement savings are safe from lawsuit and creditor’s claims, but your home and other assets may not be covered—according to individual laws in your state.
- The cost for liability insurance is usually around $300 per year for the first $1 million in coverage, then approximately $75 for the second million, and $50 per year for the third million.
- Health insurance covers only about 60 percent of health care costs for retirees after retirement. On average, health care spending accounts for approximately 15 percent of the total household budget.
- Financial planners encourage retirees to purchase insurance coverage for mortgage disaster insurance, even if for mortgages that are paid off. Additional coverage is suggested because mortgage insurance doesn’t cover some situations such as floods, hurricanes and earthquakes.
- Long-term care insurance is important because Medicare doesn’t cover 100 percent of a person’s long-term healthcare expenses, such as, nursing home or custodial care costs.
- Life insurance coverage is important for retirees who have people relying on them financially. If your estate is large enough that you will owe estate taxes, you also want to ensure life insurance policy coverage that will incorporate those expenses after death.
- Pension replacement life insurance for a spouse is recommended for those dependent on a pension as part of their retirement income.
- Protection to cover a person against a stock market downturn will ensure coverage of investments. Cash value life insurance plans could provide a backup in case the value of your portfolio decreases substantially enough to reduce your income.
- A cash value insurance policy could help to cover unexpected expenses, but, this will reduce the overall death benefit. Therefore, some planners encourage the purchase of a second term policy to cover funeral expenses.
- Consider utilizing life insurance death benefits for distributing assets equally among heirs. For example, you may want to leave stocks to one heir, real estate to another, and life insurance benefits to a third heir.
Purchasing a Medicare supplemental insurance policy is highly recommended after retirement.
It’s important to consult with a professional financial planner when considering the purchase of insurance policies during retirement planning. A professional can take into consideration, your personal financial situation, and point you in the right direction.
Resources
Weston, L. (2015, April) Insurance you still need after retirement. CBS News Money. https://www.cbsnews.com/news/insurance-youll-still-need-in-retirement/
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