As you get close to retirement, you'll be juggling a number of financial decisions, from deciding when to start claiming Social Security to how and when to start taking distributions from your retirement accounts. Don't forget during this busy time to fully review your insurance holdings and needs.
You may assume that some insurance products — life insurance, for example — are only necessary during your income-producing years. However, many retirees actually have an even greater need for certain types of insurance than they did when they were younger, says Rob Chewning, Head of Wealth Insurance Services for Wells Fargo Wealth & Investment Management.
Here are some common reasons retirees might need to revisit their existing insurance or search for new coverage:
When you work, one of the primary reasons for owning life insurance is generally income replacement, helping your family be more financially secure if anything happened to you. When you retire, you no longer have a paycheck to protect, but you may still need life insurance, notes Chewning.
"During an insurance review, you'll look at the income streams you now have from a pension, retirement plan, Social Security, and other investments and savings," he explains. "If your death would create any kind of income gap that would make it difficult for your spouse or other family members to maintain their current lifestyle, you may still need life insurance."
Other roles life insurance may play during retirement:
- Financial legacy. Life insurance may allow you to leave generous financial gifts to family or your favorite nonprofits.
- Estate planning. A life insurance policy and possibly an irrevocable life insurance trust may provide tax-free funds your heirs can use to pay for estate taxes and other wealth-transfer costs.
- Family or closely held business succession planning. A business owner can take out an insurance policy in his or her name and designate individuals who will take over the business as beneficiaries. The company's buy-sell agreement can then require the successors to use insurance proceeds to buy the company (from the owner's spouse, for instance) or for ongoing business needs.
Long-term care insurance
To get the best price, the best time to consider a long-term care (LTC) insurance policy is usually when you're age 55–65, says Chewning. You can, however, still buy a policy when you're older — you'll just end up paying more in premiums.
Your insurance specialist at Wells Fargo Advisors, LLC, can explain the two primary types of LTC policies. With a traditional, stand-alone policy, you pay nonguaranteed premiums (meaning they could increase each year). The policy provides you with time-based benefits, such as money for five years or 10 years worth of care.
An asset-based LTC policy is connected to a life insurance policy. It offers fixed premiums that won't increase, but pays a specific, maximum dollar amount toward your long-term care expenses — as much as five times the amount you paid into the policy. If you don't use the LTC portion of the policy, you may be able to cancel it and get premiums returned to you or your heirs as part of a death benefit.
If you stay in your current home after retirement and your lifestyle doesn't change much, your existing homeowners insurance policy could be just fine. However, Chewning recommends reviewing your coverage with a property and casualty specialist who understands your needs. You might want to consider higher or lower deductibles or additional policy benefits if you:
- Downsize and rent out your primary home. For instance, if you move to a condo and rent out your former home to vacationers, family members, or tenants, you will probably need a landlord's policy for your home. Encourage your tenants to purchase their own renters insurance policy to help protect their belongings and offer them personal liability coverage.
- Buy a second home. If you're adding a new policy for a second home, you may want to consider coverage that is targeted to your geographic area, like flood or hurricane benefits.
In today's litigious society, it may make sense to protect your assets in the event of a lawsuit — injuring someone in a car accident or someone getting hurt on your property. Some traditional retirement activities, like boating, may also increase your risk of being involved in a lawsuit.
An umbrella liability policy provides liability insurance coverage ($1 million to $5 million) above what your auto and homeowners policies would cover. For instance, if you were legally responsible for a car accident that seriously injured another person, a court could seize your assets and investments (outside your retirement plans) to satisfy the judgment. However, if you have an umbrella policy, it could pay for your legal fees and the amount of the judgment, leaving your personal funds and assets untouched.
"Umbrella policies can be inexpensive compared to the amount of coverage they provide, and may be well worth considering during your retirement years," suggests Chewning. "Be sure to consult with a property and casualty insurance specialist as you evaluate your options."
Take time to review
Even if you have many kinds of insurance already in place, retirement is still a good time to review your coverage. "This is particularly true if you've had your policies for 10 years or longer," says Chewning. "You want to make sure your property valuations are current and accurate, that your beneficiaries are up-to-date, and more."