in-sur-ance (in shoor/ ans), n. 1. The act, system, or business of
insuring property, life, one's person, etc., against loss or harm, in
consideration of a payment proportionate to the risk involved.
-- The Random House College Dictionary
What role do you think insurance will play in your life after you retire?
We all know its purpose. After all, we carry coverage on our homes, our cars,
and on our bodies. We use it to safeguard our assets and our family's income.
On more than one occasion we've had to make claims on our policies, and they
have saved us from paying large out-of-pocket expenses. While working, we
usually carry policies for life, disability, medical, home, and car.
Here's the big question: Do any requirements for insurance disappear in
retirement? Here's the big answer: Possibly. So it might be Foolish to see
what we can expect.
We'll still drive and we'll still live somewhere after we retire, so automobile
and home insurance policies are a given. We pay the premiums now, and we
must continue paying them after we retire. They stay.
Life insurance is a different matter. At retirement, life insurance needs
are usually far less important than they were while we were working full-time.
At this stage of life, the kids are grown and gone. Now the only person to
worry about is a spouse. A spouse certainly should enjoy the same standard
of living after we're gone as when we're alive. Will insurance be needed
to secure that standard? For Fools, probably not. That's because we have
already provided for that spouse in our planning. In retirement, the departure
of either spouse should have no effect on the ability of the other to survive
comfortably for the remainder of that person's life. If that is the case,
then perhaps all that's needed in retirement is enough life insurance coverage
to pay for all final expenses and funeral costs. Coverage beyond that amount
is unnecessary unless we're planning on leaving someone a large sum to remember
us by. If needed, we could carry more insurance so the family could pay any
estate taxes due, but that's a matter for discussion with an attorney. In
most cases we shouldn't need large amounts of coverage. At retirement, then,
we definitely want to look at our life insurance needs so we only carry the
minimum coverage needed.
While working, most of us carry disability insurance to supplement our income
in case we lose work because of sickness or injury. Sometimes we pay for
that coverage, sometimes our employers pay for it. It protects our family
income. But when we retire, we have no job income to protect. Therefore,
we cannot find private disability insurance protection. All that's left for
that purpose is Social Security. If we retire at age 62 or older, we are
already receiving a Social Security payment, so a disability is moot. But
if we retire younger than age 62, the disability coverage provided by the
system may be important. That's because under Social Security we can retire
for disability at any age. We can, that is, provided we have worked and received
10 years (40 quarters) of credit and have been covered under the system for
at least 20 quarters (five years) out of the last 40 quarters (ten years)
ending with the quarter in which the disability occurred.
What's the importance of that? Say I retire at age 50. I become disabled
at exactly age 54. Looking backwards ten years, I see I have been covered
under the system for six years, so I can begin drawing Social Security right
now, without having to wait until age 62. Take the same situation but change
the disability age (the age at which I become disabled) to 56. Now I only
have four years of credit in the last ten. This means that I was covered
for only 16 quarters, not 20, quarters out of the last 40. Therefore I am
not eligible for Social Security disability. Worse, I must wait another six
years before I reach age 62, at which time my Social Security retirement
benefits may begin. Is that important? This Fool thinks so. If disabled,
my living costs go up, so that extra cash could make a big difference in
my ability to survive comfortably.
While working, we typically enjoy medical and health insurance coverage through
a group policy available from our employer. Leave that job, and by law we
can continue that coverage for 18 months. After that, we're on our own. Absent
retirement for disability under Social Security, Medicare coverage does not
begin until age 65. If we retire earlier than that, we'll still need that
medical coverage, but an individual policy will be enormously expensive.
That drain on the pocketbook requires extensive research and investigation
to ensure both the availability and affordability of health insurance when
we retire. Some employers allow retirees to retain group medical coverage
in retirement. A group policy available through an employer will almost certainly
be the cheapest and most comprehensive insurance available, but employers
do not have to provide this coverage beyond the 18 months specified in the
law. Health insurance for younger retirees is a huge problem that must be
addressed. In some cases, it could very well dictate a longer working career
than initially desired. Be Foolish and examine this issue closely prior to
making a final decision.
When we reach age 65, Medicare coverage becomes available. While valuable
insurance, it will not pay for everything. Thus, we must supplement that
with additional insurance. These policies vary in cost and specifics, but
they all conform to uniform coverage provisions dictated by the National
Association of Insurance Commissioners. When we need that Medicare supplemental
coverage, we must comparison-shop for policies to select the one that best
fits our medical needs and pocketbooks.
Some Fools may want to consider long-term care insurance. These policies
come in many forms, but all have one thing in common: they are not cheap.
But neither is nursing home care in old age -- the average cost is $37,000
per year. Long-term care coverage is another area that must be examined closely
before purchase. Remember: the younger you are at first purchase, the lower
the cost.
Of all the insurance issues we've covered, those dealing with medical and
health insurance in retirement are the most important. Be sure and give these
issues careful attention as you plan for retirement.
And now, The Final Act. Dum
dum duuuuuum.
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