Re-evaluating insurance coverage as you approach retirement
Baby Boomers Changing Insurance Needs
by Gary Foreman
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As baby boomers approach retirement age, their insurance needs mature, too. Some needs decrease, while others become more important. We wanted to learn about boomers and their changing insurance needs.
We spoke with Karen Lorenzo, the online content coordinator for FPS Insurance. Here's the information that she collected for us.
Q. Are retirees insurance needs different? And, if so, how are they different?
Ms. Lorenzo: For one, retirees won't need life insurance as much since those who depend on them financially are likely to be able to look after themselves by then. They will also need to shift their attention to the new challenges brought about by aging, such as their health. Our bodies become more susceptible to illnesses and other medical conditions as we age, so not only will health insurance be more important, but also getting long term care insurance may be prudent as well.
Q. Many people had life insurance through their employment. When they retired they lost that insurance. Is it important to replace it?
Ms. Lorenzo: For most retirees, getting life insurance would be unnecessary, but they need to look at their unique financial picture first. Life insurance is meant to replace income lost if the policyholder dies, thereby providing support to the dependents. However, if you're no longer working, there's no income to replace, and maybe your children have all grown up to be self-sufficient and your house has been paid off. Then you have to consider your current situation to determine if life insurance is still a good idea.
A few situations where it may be sound to get life insurance coverage include:
- If you are in debt or are still working
- If you have a disabled child or a dependent who needs ongoing support
- If you would like to leave a charitable legacy
- If you're risk averse and want an investment
- If you wish to have more funds or options for estate planning
The type of life insurance policy you'll get will be different depending on your unique needs, so it's recommended to talk with a fee-only consultant for unbiased advice.
Q. If I do need life insurance, how do I determine how much to buy?
Ms. Lorenzo: This will be difficult to quantify without analyzing your actual financial situation. A good first step would be calculating how much you can comfortably afford with your budget and then looking at how much your beneficiaries will need to financially cope if you were to pass away. Your budget will still form the ceiling for how much you can buy. You then find out what amount would let your dependents avoid experiencing significant financial loss after your death.
Calculator: How much life insurance do I need?
Q. Long term care insurance is becoming more popular. What is it? And is it something that retirees should consider?
Ms. Lorenzo: Long term care insurance is meant to pay for your future long term care needs, such as home care or extended stays in nursing homes. In a way, it's the counterpart of life insurance in that life insurance provides benefits in case of death, while long term care insurance provides benefits in case of long life.
Retirees definitely need to consider long term care insurance as nearly 70% of 65-year-old Americans will need some form of long term care in their lives. Also, medical advances today have lengthened average life spans, and the longer you live, the more likely it is that you'll need care. With this policy, you can have funds already set aside to pay for the increasingly high cost of care and you avoid burdening your family to look after you.
Q. Can insurance be used to avoid probate?
Ms. Lorenzo: You can use life insurance to avoid probate for the policy's death benefits. Once you name a beneficiary, he or she will receive the death benefit directly, bypassing probate costs and time. Otherwise, the death benefit will go to the estate and will become part of the assets undergoing probate. Naming a beneficiary is crucial, as it ensures a quick and private transfer of funds.
Q. What's the most common mistake that retirees make regarding insurance coverage?
Ms. Lorenzo: The most common mistake that retirees make when getting insurance is not doing enough analysis and research prior to purchase. Because insurance policies can be complex financial products, many avoid going into its details or examining their finances closely. Some simply accept the policy that their agents push them to get. They then blame everyone else when unpleasant surprises spring on them later on. It's highly recommended to take your time assessing your situation and the policies you're considering in order to get the best in insurance coverage.
If you're a baby boomer approaching or just entered retirement, you'll probably want to take a look at your current insurance coverages to see if they meet your changing needs.
Reviewed April 2017
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter. Gary is also available for audio, video or print interviews. For more info see his media page.
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