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EVALUATING THE NEED FOR INSURANCE IN
RETIREMENT
Of all the changes that come in retirement, few are likely to
give you more concern than dealing with money. Your concern is,
of course, understandable and widely shared because so much of
what will happen is unpredictable. That's especially true of how
long and how well you may live — whether you live long enough to
have to lower your standard of living so that you can stretch
your nest egg to avoid the horror of outliving your money.
Although you may improve your situation by taking good care
of your health and living without extravagance, you should be
adequately covered against unforeseen losses by the right kinds
of insurance. If you think of insurance as a product to be
bought and focus only on its costs, you may consider it a luxury
that you cannot afford.
But if you regard it as a vehicle for managing risk — at a time
in your life when you probably will be more vulnerable to the
risk of substantial losses and less able to recover quickly —
you
may think of certain types of insurance as necessities while
considering others only as optional. During retirement there are
three major risks: risks to health, longevity and to our
property. Some of these risks are ones that should be addressed
before the age of retirement.
Necessities:
Medicare supplement (Medigap) or Medicare Advantage
insurance. This coverage helps you to pay Medicare
deductibles and the portion of hospital and medical charges that
are approved by Medicare but not paid by it in a year when your
total hospital and/or medical charges are high — something that
can happen when you get older. Those who are willing to pay more
to have a greater choice of services generally choose a Medigap
policy. Those who prefer to save money and use a limited pool of
medical service providers might prefer to use the Medicare
Advantage program.
Prescription drug coverage. At a time when your need
for prescription drugs may grow, be sure that you have insurance
to cover a substantial share of those costs. In some cases, a
retiree will have the choice of using a prescription drug plan
offered by a former employer. In other cases, a retiree's only
choice will be to sign up for the new Medicare Part D drug plan.
The latter is a voluntary program, however, so don't hesitate to
sign up if that's your only option.
Possible Necessity:
Long-term care (LTC) insurance. This insurance is
designed to help you to meet the high costs of nursing facility,
assisted living and/or home care that you might incur if and
when you are not able to handle the activities of daily living
such as bathing and dressing.
While LTC insurance might not be for everyone, it is very
important to evaluate such insurance while you are young and
healthy, generally in your early 50s. The cost of this coverage
is based on your age and health at the time you apply for
coverage. By waiting to consider LTC insurance, many people risk
the onset of health conditions that may subject them to higher
risk classes with higher premiums, or, even worse, may make them
uninsurable for LTC insurance. One of the biggest mistakes made
when purchasing LTC insurance is to inadequately cover for
inflation of LTC costs. LTC insurance can be purchased as an
employee benefit, through an association or individually. Group
plans often provide discounts or underwriting concessions.
Option:
Additional life insurance. If you have sufficient life
insurance coverage — under a group and/or individual policy —
and/or
financial assets to provide for your spouse and/or other
beneficiaries, including enough to help them during the first
year after your passing, you probably won't need additional life
insurance coverage. If not, shop among strong insurance
companies for the plan that best meets your personal needs and
is priced reasonably.
Continuing coverage:
In retirement, of course, you must maintain and budget for
other insurance policies — such as for your home and cars —
because
retirement does not change your need to protect yourself against
the risks of fires, floods, natural disasters, accidents, or
other potential causes of losses. However, you should examine
these policies to see whether you should add or delete anything —
or raise or reduce the values of specific items such as
jewelry or electronic equipment. You may find that you are still
paying a premium for an item that you disposed of years ago.
It's always a wise move to reevaluate your insurance needs as
you transition into retirement.
January 2006 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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