Insurance is a puzzling and frustrating topic; it’s often hard to tell how much we need, how much we can afford not to have, and whether we should have it at all. Just about anything can be insured, and in some cases we are bound by law to have insurance, so this is a topic that we should familiarize ourselves with.
Life insurance is the most complex of all. For most purposes, a simple term policy is best — one pays an annual premium that promises a payout of a certain amount should one die while the policy is in effect. Other than the death payment, there are no benefits to a term policy. It is meant to replace lost income should a breadwinner die and leave his or her family without an adequate income. It makes sense then, when you stop working (and there’s no more income to replace), to cancel your policy and save on the premiums. However, there may be reasons to keep a term policy even into retirement: to allow your survivors to pay off debts (such as a mortgage), or to pay estate taxes (on a family business, for example).
Whole life policies provide a death benefit but also build up a cash value; there is a whole array of such policies with various wrinkles. Most financial advisors, however, recommend against whole life policies: fees are high, as are commissions paid to salespeople, and you’re therefore likely to do better purchasing a term policy and investing through more traditional means, such as no-load mutual funds.
Auto insurance is required by law throughout most of the world. You’ll have to decide whether to purchase the minimum — a defined amount (depending on jurisdiction) of liability insurance covering any injury you cause to other people or other people’s property. Additional coverage is recommended — for instance collision insurance, which covers your own vehicle.
Homeowner’s insurance is also required, by your bank if you’re paying a mortgage. Once you own your home outright, insurance is not required, but it’s highly recommended. Should your house go up in flames and you’re not covered, your retirement plans will go up in smoke as well. If you don’t own a home, you might consider renter’s insurance covering your personal possessions.
You could study health insurance for years and still not have a grip on various coverages, options, and requirements. Most employees and their families are covered by their companies, and some companies continue coverage for retirees.
Most retirees, however, become dependent on Medicare, which can be enough for most circumstances. If there is a gap between retirement — say, early retirement at age 62 — and Medicare eligibility — at age 65 — then you’ll need to cover the gap, often with private insurance. For the destitute, Medicaid can provide a safety net, but qualifying for Medicaid can be a cumbersome process. There are various other areas of insurance that are worth considering. So-called “umbrella policies” can protect you against lawsuits, though if you live quietly and safely, it’s unlikely you’d need such a policy.
Umbrella Policies and Travel Insurance
Travel insurance can help you if you have to suddenly cancel a trip for which you’ve prepaid, if you are robbed while traveling, if you have an accident or fall ill and have to be airlifted to a hospital, and other circumstances; many of these contingencies may be covered by various insurance policies you already have. And long-term care insurance can cover nursing home costs and home-care costs. However, these policies are expensive, especially if you’re already in your 60s when you first purchase one, and many insurance companies are finding that they can no longer afford to issue long-term care policies, as nursing home costs continue to skyrocket.
There is much to consider regarding your insurance needs; consult with a financial advisor if you need help.