Retirement and Insurance: Do We Need It?

When I retire do I need insurance is a question that I am asked with some regularity.  Well, that should be simple. You have retired. Your need for anything other than Medicare, auto, home or other health insurance is over, right?

Not so fast. 

There are at least five different insurance products that may be important to your retirement financial planning. Let's take a look at each one:

Medicare Supplemental Insurance

Medicare is a tremendous health insurance program for those 65 and older.  It is a blessing after years of dealing with the complicated mess that is the American health insurance system. Even so, you must be aware that Medicare does not cover some important expenses. The Original version usually covers only 80% of your expenses. While that seems quite generous, an expensive hospital stay or operation could means you are responsible for thousands, or even tens of thousands of dollars in costs. Medicare does not pay for most drugs. It doesn't cover long term care. 

To help with these issues you need to add supplemental insurance to the monthly package of Part A and Part B. A supplemental policy can cover the 20% that Medicare does not. It can provide extra services that are not part of Medicare. Another type of coverage, Part D, helps with prescription drug expenses. 

Medicare Explained is a post from a few years ago that will give a quick overview. 

Life Insurance

This category of insurance seems simple to answer. If you are retired, any children are raised and gone, and you have investments, a pension, IRA, Social Security, or other form of income, what possible need would you have for insurance if you die unexpectedly? 

For many of us, the answer is none. However, there are situations when owning a life insurance policy after retirement is prudent. Caring for a disabled child, protecting your family while you are still working, as part of an estate, or funding a charitable legacy after your death are a few of the reasons why maintaining life insurance after retirement may be wise. 

CNBC has an overview of these possibilities at this web address: When it makes sense for retirees to have life insurance 

Long term Care Insurance

This is the type of insurance that generates the most email questions to this blog. It is also the hardest to give a satisfactory answer to. An insurance product that provides a fixed, monthly sum to help cover the rapidly rising cost of long term care seems as if it should be part of of our financial planning. Standard Medicare and supplemental insurance policies provide only limited help. With expenses as high as $10,000 a month, it would be easy to have a healthy nest egg wiped out rather quickly. 

Unfortunately, the companies that provide this type of coverage have discovered the problem: costs are so high and surging so quickly that these policies quickly become serious cash drains. Several companies that once sold LTC policies no longer offer them. Customers who have paid premiums for years suddenly are left with no coverage and all that premium money gone. Or, if the insurance company doesn't pull the plug, it may raise the premiums to the point of unaffordability. A customer who stops paying is without coverage and loses all the money spent up to that point. 

The final decision is a very personal one, based on your financial resources and other options or concerns. For a good review of the pros and cons of LTC insurance read this article: LTC insurance: is it worth it?

Pre-need (funeral) Insurance

To protect family members from the costs associated with your passing, a specialized type of insurance is available that pays for funeral and burial expenses, the cost of a plot, and a service. Social Security does provide a small amount of money upon your death, but not even enough to cover a simple cremation.

Often sold by an individual funeral home, these policies come with their own supporters and detractors. Like any insurance product, the delivery of what you have paid for depends on the viability of the company that sold it to you. With the average funeral costing between $7,000 and $10,000 (and easily double that for a top of the line casket plus the cost of the actual burial plot), is this type of insurance worth the cost? 

For a clear-eyed overview of this type of insurance click here: Do I need Pre-Need Insurance?

Travel Insurance

This is a type of insurance most of us probably don't consider. Maybe trip cancellation coverage makes sense when booking an expensive cruise or European jaunt. After all, we can't predict an illness or change in circumstances that make taking that trip a real hardship. Not surprisingly, though, even these straightforward policies have a fair number of exclusions and small print.

But, once you leave for the trip of a lifetime, you are focused on the memories and fun ahead, not the problems. But, what if you become ill overseas, find yourself needing a medical evacuation, face 2 weeks without your luggage....travel is not a risk-free adventure.

Someone will be happy to sell you an insurance policy that covers most of those travel-based disasters. But, should you?  Read Do I need senior travel insurance?  to help you decide before that cruise down the Danube River if such a policy is worth it to you.

Insurance is not the most pleasant subject to consider at any age. After all, it's purpose is to help you make your life right again after a major catastrophe. After retirement, it can take on greater importance. Without income to help you rebuild your financial house, having the proper insurance can become the difference between the continuation of a satisfying retirement and financial devastation.