Wednesday, July 29, 2015

Ask Carrie: How much insurance do you need in retirement?

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Dear Carrie,

I’m 63 and will leave my full-time job in six months. In an effort to cut back, I’m looking at all my expenses and it seems like I’m paying an awful lot in different types of insurance premiums. What do I really need at this point in my life?

—A Reader

Dear Reader,

Smart question. Insurance needs really are different at different points in life. Some insurance is essential at any age, but some can be just a waste of money. So at your age—and as you approach retirement—this is a great time to take a step back and reevaluate.

Health insurance is a “must-have”

No matter your age or job status, you have to have health insurance. Not only because the law now mandates it, but also because it’s essential for your personal and financial security. So the first thing is to look at how your health coverage will change when you leave your job.

If you’re going to lose your group coverage when you leave, you have to fill that gap with another policy. COBRA is the easiest way to do that. It basically continues the coverage you’ve had through your employer, but it comes out of your pocket. Check with your employer while you’re still working to make sure you’re eligible. If you are, the good news is that COBRA also covers your spouse or other dependents that have been on your policy. The bad news is that it will most likely cost significantly more than what you’ve been paying as an employee.

Alternatively, you can now shop for a policy through your state health insurance exchange or the federal health insurance exchange. You might even qualify for a lower premium, depending on your income.

Once you turn 65, you’ll be eligible for Medicare. But even at that time, you’ll want to have a supplemental (Medigap or Medicare Advantage) policy to cover costs that standard Medicare doesn’t.

A car requires insurance

It’s essential to have liability insurance in the event of an accident. Most states require you to carry at least basic liability insurance to cover damage to others, including both bodily injury and property damage. If you want to cover things like damage to your car or theft, that’s your decision.

Homeowners and renters insurance get high marks

If you own your home, make sure your coverage adequately protects both your dwelling and your possessions. Property values in your area may have risen since you first took out the policy, so double check that your current coverage would actually pay replacement costs if your home was damaged or destroyed.

And remember, a homeowner’s policy generally covers possessions up to a specific dollar amount. Depending on where you live, you may want earthquake, flood or wind insurance as well.

If you rent, don’t be content that your landlord has a policy. It will only cover damage to the dwelling, not to your possessions. You need your own renter’s policy for that. Renters insurance usually covers events such as fire, theft, and vandalism, and may also protect you from damage due to faulty wiring, water, or weather. Plus, it’s generally pretty inexpensive.

For extra protection, consider an umbrella policy to provide added coverage in the event that you’re sued for an injury caused by you or your property. It’s generally low-cost and could be well worth the extra dollars. If you have significant assets—and even if you don’t—a substantial judgment could easily put your finances at risk.

Life and disability insurance are a maybe

These two types of insurance are definitely related to life stages. For instance, once the kids are grown, you may not need life insurance unless you have other dependents relying on you or you own a business.

Likewise, while disability insurance may make sense during your peak earning years, when you’re no longer working—and especially when you begin taking Social Security—you can probably put that money to better use.

Long-term care insurance deserves consideration

This is always a tough one. Long-term care insurance isn’t cheap and premiums and benefits vary widely. However, the U.S. Department of Health and Human Services estimates that about 70 percent of people over 65 will require some type of long-term care services at some point. It’s worth thinking about how the cost of care vs. insurance would affect your overall financial health.

Insurance that may be best to avoid

And now for the not so good. Life insurance for kids, car rental insurance, flight insurance, pet insurance, even private mortgage insurance in some circumstances, may be unnecessary. Before you hand over a check, make sure you understand what is (and isn’t) covered, and also make sure you’re not covered elsewhere.

Insurance is only worth the money if it truly protects you and your finances. At this time in life, as you approach retirement or semi-retirement, it’s wise to re-examine your current policies. That way you’ll know that you have what you need—and you’re not wasting precious dollars on what you don’t.

 

Looking for answers to your retirement questions? Check out Carrie’s new book, The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions (Crown Business, 2014), available in bookstores nationwide. Read more at http://schwab.com/book.

This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. COPYRIGHT 2014 CHARLES SCHWAB & CO., INC. MEMBER SIPC. (0714-4681)

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Carrie Schwab-Pomerantz
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