Insurance you still need and insurance you do not

Insurance exists to transfer risks you could not absorb. Retirement changes which risks those are, and reviewing the portfolio of policies is worth doing at the transition.

Life insurance

The policy most often carried past its usefulness.

The purpose of life insurance during working life is generally to replace income for dependants.

Once there are no dependants relying on your income, and retirement assets are in place, that purpose has largely gone.

Where it may still be needed: to protect a surviving spouse against the loss of a pension that stops at death, to cover estate taxes in a large estate, to equalise inheritances where an illiquid asset passes to one child, or for a dependant with lifelong needs.

Term policies simply expire and cost nothing to drop.

Permanent policies are more complicated. Surrendering may produce a taxable gain, and there may be options — reduced paid-up coverage, using cash value to fund premiums, or a life settlement — that are better than surrender.

Worth obtaining an in-force illustration and independent advice before acting, particularly on older policies which may have favourable guarantees.

Disability insurance

Generally becomes irrelevant once employment income stops, since there is no income to protect.

Employer-provided coverage typically ends with employment in any case.

Health insurance

Discussed extensively elsewhere on this site and it is the central one.

Before sixty-five: marketplace coverage, continuation coverage, a spouse's plan, or retiree benefits.

After: Medicare with either a supplement or an Advantage plan, plus drug coverage.

This is the insurance decision with the largest financial consequences and the least reversibility.

Long-term care

The largest uninsured risk for most retired households.

Covered elsewhere on this site. The decision is genuinely difficult, and the default of doing nothing is a decision to self-insure whether or not it was chosen deliberately.

Property and liability

Frequently under-reviewed and occasionally the most important.

Homeowners coverage should be checked for whether the rebuilding cost limit is current, since construction costs have risen substantially in recent years.

Under-insurance is common and only becomes apparent after a loss.

Coverage for specific perils — flood, earthquake, wind — is frequently excluded and requires separate policies.

Umbrella liability coverage. The most under-purchased insurance relative to its cost.

It provides liability protection above the limits of home and auto policies, typically for a modest annual premium.

For someone with substantial retirement assets, a liability judgment exceeding the underlying policy limits is a genuine threat to the entire plan, and the coverage is inexpensive precisely because the events are rare.

Auto coverage, where liability limits should be reviewed rather than left at whatever was chosen decades ago.

Where driving has reduced substantially, mileage-based options may lower premiums.

Policies not generally worth buying

Stated plainly.

Narrow policies covering specific illnesses or events, which duplicate what health insurance should cover.

Extended warranties on most consumer goods.

Small-value policies sold on the basis of covering funeral costs, which are frequently expensive relative to the benefit.

Credit life and similar products attached to loans.

The general principle applies: insure what you could not absorb, and absorb what you could.

The review

An annual look at what is held, what it costs and what it covers.

Premiums drift, coverage becomes inadequate as values change, and policies persist long after their purpose has gone.

Shopping the property and auto policies periodically is worthwhile, since pricing varies considerably between insurers and loyalty is not generally rewarded.

Reviewing what an employer provided

The specific items to check at the transition.

Group life coverage generally ends or reduces sharply, and conversion options are time-limited.

Group disability ends.

Some employers provide access to legal or identity protection services that lapse.

And any coverage that was payroll-deducted stops being paid automatically, which is a reliable way of discovering a lapsed policy at the point of a claim.

The deductible question

A general principle for property and auto coverage in retirement.

Higher deductibles reduce premiums, and a household with an adequate cash reserve can absorb a higher deductible comfortably.

The insurance is there for the loss you could not absorb, not for the one you could.

General information only, not insurance or financial advice. Policy terms vary — consult a qualified independent adviser about your own situation.