Insurance in Your Retirement Years

By Dan Rafter

Retirement is nearing. You’ve saved up a solid nest egg and are confident you won’t run out of money after you leave the working world. But what about insurance? Have you been as diligent about planning your insurance coverage during retirement?

Probably not. Financial experts say that most seniors focus on building their wealth as they near retirement. They should be doing this, of course, but they should also take care to study their insurance needs, too.

Michael Gerstman, chief executive officer with Dallas-based Gerstman Financial Group, says that insurance should serve as the foundation of every near-retiree's financial planning. Unfortunately, this doesn't always happen.

"Insurance is often overlooked in the retirement conversation," Gerstman said. "Insurance is there to protect a need that most people can't afford on their own. But it's so infrequently spoken about."

Your health, life and homeowners’ insurance needs can all change when you enter retirement. Making sure you have enough insurance coverage during these years can make the difference between a happy retirement and a stressful one.

Homeowners insurance: You still need it

What insurance coverage do people need to review before they hit their retirement years? Homeowners’ insurance is an important one.

Retirees who are still paying off a mortgage into their retirement years will still need homeowners' insurance. That's a requirement of their mortgage lender.

But what about those retirees who’ve paid off their mortgages? They are no longer legally required to carry homeowners’ insurance. Should they save some money and drop this coverage?

Gerstman recommends against this. He says that retirees should maintain their homeowners' or condo insurance policies even if they are not required to do so.

What happens if your home is destroyed in a fire? What if a thief steals the most expensive items in your condo? Without the proper insurance, you'll be responsible for covering the costs of rebuilding or replacing valuables. Without insurance, you could be facing a huge financial hit, Gerstman said.

"All it takes is one negative event in your home to potentially destroy your retirement planning," Gerstman said. "Your home might be mortgage-free, so you let your homeowners' insurance go. Then your home is damaged severely, and it is devastating to your retirement savings. Looking at insurance is as important to people when they are in their 60s or 70s as it is for people who are 35 or 40."

Health insurance: More than Medicare

Most retirees plan on the federal Medicare program to cover most of their health insurance needs. And this coverage will do that. But Medicare doesn’t cover everything. To protect yourself, insurance experts recommend that you consider supplemental health insurance coverage, a form of insurance often referred to as Medigap coverage.

Medigap is different than Medicare. You purchase Medigap insurance from private companies. You'll have to pay a monthly premium for this protection, but this supplemental health insurance will cover costs that Medicare won't, such as co-payments, deductibles and health coverage if you travel outside the United States.

And that’s just one Medicare-related decision you’ll have to make as you near retirement. You’ll need to study your Medicare options carefully to make sure that you’ll receive the amount of coverage you’ll need after leaving work.

Cory Carlton, co-founder of Both Hands Financial Group in Brentwood, Tennessee, said that people need to research their Medicare options carefully before signing up for this coverage. There are different types of Medicare coverage, and each comes with its own pluses and minuses.

Carlton recommends that people work with insurance advisors before signing up for any Medicare plan. These advisors will consider their clients’ financial and health goals before recommending a Medicare package for them.

"This is one of the single biggest decisions people make that affect their retirement," Carlton said. "Making sure you have the right plan is vital to making sure you never run out of income and manage your expenses. Medicare is often confusing, and people can't afford to get it wrong. Often, they make decisions based on how they have always made health insurance decisions. That can cost them thousands of dollars for the rest of their life."

Long-term care: An important decision as you age

Sidney Divine, financial planner and owner of Divine Wealth Strategies in Atlanta, said that people approaching retirement should start researching long-term care insurance, too.

This type of insurance, as its name suggests, is designed to help cover the costs of long-term medical care, services or support. This insurance can help you pay for stays in nursing homes or assisted-living facilities, hospice care or medical services that you receive in your home on a long-term basis.

"A lot of retirees I see don't have this insurance and don't expect that they will need it going forward," Divine said. "The costs can tend to be pretty high, but it's smart coverage as it would protect retirement assets should care be needed."

This coverage isn't cheap. LongTermCare.gov said that in 2007 the average long-term care insurance policy cost $2,207 a year. The cost of this insurance will vary significantly depending on the age at which you purchase a policy. AARP says that this insurance will cost less if you buy it when you are younger and in good health.

"Long-term care insurance helps older people stay in their home and avoid a nursing home," said Tom Rieske, managing director with LTCI Partners, a provider of long-term care insurance in Lake Forest, Illinois. "With an aging population and a shrinking labor force, quality care is expensive and long-term care insurance can help. Plans are surprisingly affordable if they are bought when people are in their 50s and early 60s. But good health is a must to qualify."

Rieske said that if people buy long-term care insurance early enough, they can expect to pay premiums of about $100 a month for more than $100,000 in coverage.

Life insurance: Not as expendable as you think

You might think you can cancel your life insurance policies after retirement. Maybe you can, if you are no longer providing financial assistance to any dependents. But what if you have a child with special needs? You might want to keep a life insurance policy so that this child can continue to receive financial assistance if you should die, Gerstman said.

"You might think that your kids are grown and out of the house, so life insurance is no longer necessary," Gerstman said. "But if there is not a sufficient nest egg to take care of your surviving spouse or your children might need help after you are gone, you might want to continue your life insurance coverage. I see more and more retirees carrying life insurance into retirement with them."