Does Retirement Change Your Need for Insurance?

by Gary Foreman

Does Retirement Change Your Need for Retirement photo

For most of us, retirement means significant changes to our lifestyle and our financial situation. We explore how these changes impact our insurance needs.

When I was young, one of my favorite bands was the Byrds. One of their best songs was ‘Turn, Turn, Turn’. They were quoting King Solomon who was reportedly the smartest man to ever live. The chorus of the song was

To everything (turn, turn, turn)
There is a season (turn, turn, turn)
And a time to every purpose, under heaven

I didn’t realize at the time how true that was. But now, decades later, I know that what was important in my 20s or 30s may not be important now. And that some things that weren’t important before have become important now.

That’s especially true with your insurance needs. Retirement changes more than just your schedule. It also changes your need for various insurance policies.

Do insurance needs change with retirement?

The simple answer is ‘yes’ they do. For many people, retirement means a reduction in income. So you’ll want to spend as little as possible. Some policies can be reduced/eliminated. That’s a good idea, but cutting the wrong insurance policy could lead to a financial crisis. Knowing the difference is important.

You might be in the habit of reviewing your policies annually. Or not. Most of us just give the renewal notice a quick once over.

When you retire, you need to do more than just a cursory review of your insurance. You need to take into consideration your lifestyle and finances and then make the appropriate changes to your insurance policies. You’ll find that some insurance needs will decrease or go away completely while others will increase.

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How does retirement affect insurance?

Obviously, you’ll lose any employer supplied insurance. Many employers provide medical (sometimes including vision and dental) and life insurance policies. Typically, when you retire, those policies disappear. You may be allowed to purchase a similar policy at your own expense.

Some pensions include insurance coverage. Either as a permanent part of your pension or as a option for you to purchase. Before you make any decisions, you’ll want to know exactly what insurance you have when you retire.

Retirement will also change your lifestyle. Any commute you had will be eliminated. It’s likely that you’ll be facing more health issues. You also have a greater need to protect the assets that you accumulated during your working years. Retirement is also a time when estate planning becomes more important.

All of these changes will impact what and how much insurance you need.

Does car insurance go down when you retire?

 Insurers use a variety of factors to assess your risk as a driver and how much they should charge you for insurance. Some factors, like the car you drive and your driving record, don’t change just because you’ve retired. But others do.

A big change for many drivers is how many miles they drive each year. Lack of a daily commute could put you in a ‘low mileage’ category with subsequent savings. Another potential savings could come from changing your car’s status from driving to work to pleasure driving.

Many insurers also have senior discounts. Make sure to ask about them. Don’t assume that you’ll get them automatically. You may be required to take a senior driving course to get any discount.  Also be aware that as you continue to grow older, some insurers will increase your rate.

A final potential savings on auto insurance is the need for a second car. You may find that without a daily commute becoming a one car household is practical.

With so many changes it’s a good time to shop your auto insurance business. You may have been using the same company for years/decades. Use some of the extra time you have to see if you can find some extra  savings!

Which type of insurance needs increase in retirement?

Even though your life is probably simpler, some of your insurance needs can increase. Failure to recognize a need and get appropriate coverage could blow a big hole in your retirement finances.

Let’s look at a few areas where you may want increased insurance coverage.

Your home may need more insurance in retirement

Many retirees decide to age in place. You’ve been in the same home for years (decades?) and have no desire to move. There’s a good chance that your insurance hasn’t kept up with the times.

For instance, do you have ‘replacement value’ coverage for your possessions? You probably have thousands of dollars of possessions in your home. If you were robbed or had a fire would you receive replacement cost or the yard sale value?

And what about your home itself? Many jurisdictions have increased requirements on major home repairs. Green laws and hurricane prevention are common. Those laws add to the cost of rebuilding. If you had a major fire, would you have enough insurance to rebuild at today’s higher standards and prices?

Then, too, there are liability coverages. It’s not uncommon for standard homeowners policy limits to be too low. Medical and legal costs can add up quickly. You don’t want to lose your retirement nest egg if someone slips on your side walk.

Your car may need more insurance in retirement

There was a time when $100,000/$300,000 liability limits were plenty. Only rarely did accident damages exceed these limits.

That’s not true today. Hospital bills often run $200,000 or more.

Check your liability limits. Claims above your limits could take money from your retirement savings.

Your health may need more insurance in retirement

If you retire before age 65, you may need to purchase COBRA coverage from your employer or private insurance from the marketplace.

Even if you are of retirement age (65 years old), you may still want supplemental medical insurance. Medicare only covers a portion of your medical expenses. As you age, your medical expenses may become one of your largest expenses, so any insurance that helps offset the cost may help.

Long-term care insurance in retirement

Medicare does not pay for every health related issue in retirement. There are specific limits for home nursing care or assisted living.

“Health care can be one of the biggest expenses a person faces in retirement. A 65-year-old couple who retired in 2020 can expect to spend $295,000 in health care and medical expenses throughout retirement. This doesn’t include the additional annual cost of long-term care, which in 2020 had a median costs of $105,852 for a private room in a nursing home, according to long-term care insurer Genworth.” (source: Investopedia.com)

Long-term care insurance can cover that need. Policies can be expensive so you’ll want to inform yourself of the choices and shop carefully.

What happens with your life insurance when you retire?

Employer supplied life insurance may lapse when you retire. But not in all cases. It depends on who owns the policy and what type of insurance it is. Some policies are term – i.e. they stop if the premium isn’t paid. Other policies include a cash value that you may take.

The best way to find out exactly what happens to your employer supplied life insurance is to talk with your human resources rep. They may know the answers or may refer you to someone at the insurance company.

You may have some choices. You may have the option to continue the policy at your own expense. Or, if there’s a cash value, you may choose to use the cash to extend the policy or take the money.

Life insurance in retirement

There was a time when you needed life insurance to protect your young family in case something happened to one or both parents. But your circumstances are different now. Your children are grown and don’t depend on you to support them. So how much life insurance do you need? Or do you need any life insurance at all?

There are still a few circumstances where life insurance would come in handy. One is if your executor will need money to pay for your final expenses. Even a simple funeral will cost hundreds/thousands of dollars. A small life insurance policy can be used to cover those costs.

Another circumstance where life insurance can come in handy is if you’re facing an estate tax when you die. If the premium on insurance is less than the tax you’ll owe, a policy can be purchased to cover the tax. A financial advisor can work out the math for you.

Medical insurance after retirement

As we age, health becomes a bigger issue. As does the insurance that we use to help pay for needed medical care.

If you retire before you’re eligible for Medicare, you’ll need to make provision for medical insurance. You may be allowed to continue your former employer’s plan by paying for it yourself. Or you can use the Health Insurance marketplace. You will not need to wait for the annual open enrollment period.

Once you hit 65, you’re eligible for Medicare. But contrary to popular belief, Medicare does not pay for every health related expense. It’s not unusual to rack up $100,000+ in uncovered medical related bills after retirement.

You may choose to purchase a supplemental plan, sometimes called Medicare Advantage plans. There are a variety of options available to you. You’ll need to compare the various plan benefits to your specific needs. You can find out more in the 32-page pdf available at Medicare.gov.

King Solomon and the Byrds were right. There are different seasons in life. Each one has its own needs and items that demand our attention. Having the correct insurance policies once you retire can be a money saver and also protect you from potentially catastrophic bills.

Reviewed June 2022

About the Author

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.

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