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Insurance and Your Retirement: The Big Picture

As you move toward retirement, other insurance needs are likely to become more important. Our article provides a helpful overview of various insurance topics that can be a crucial part of retirement planning.

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What issues should i consider before i retire?

Insurance is a vital part of financial planning for most of us. The benefits provided by life, health, and casualty insurance help to shelter us from the risk of the unexpected that is a part of everyday life. No responsible person would consider driving a car or owning a home without making sure they were appropriately insured against accidents, natural disasters, or other calamities. In the same way, the importance of life and health insurance is well understood by most of us. Insurance on the life of a primary breadwinner provides vital financial resources for dependent spouses and children in the event of the breadwinner’s premature death. And with medical costs rising every day, most of us consider good healthcare coverage a must-have.

On the other hand, for those moving into the retirement phase of life, significant changes are occurring in their finances and also their responsibilities. These changes bring about a number of shifts in insurance needs. Any sound retirement strategy should incorporate a detailed look at insurance needs going forward. In many cases, this will uncover a need to reallocate premium dollars from one area to another. There are three areas of special interest where the needs of retiring persons are likely to diverge from those of younger people.

Life insurance

As mentioned above, most of us understand the importance of life insurance, especially for younger families. If a breadwinner dies unexpectedly, life insurance can create an “instant estate” to support the financial security of spouses, children, and others who may have been dependent upon the breadwinner’s income. In the case of business owners, key-person or buy-sell insurance can be useful for funding agreements crucial to the continuance of a business in the event of the death of a partner or key employee.

But as you move into retirement, your need for continuation of income is likely to decrease in importance. For those with pensions, Social Security benefits, and income from retirement accounts and other investments, the retirement income stream is likely to be less subject to interruption, even in the event of death. Also, it is less likely that there are still children at home who are dependent on your income. Under these circumstances, it may no longer make sense for you to continue paying premiums for life insurance.

There is one exception, however. For those with large or complex estates, life insurance can be a useful estate planning tool. One example is an irrevocable life insurance trust (ILIT) that can be designed to provide a source of funding to pay final expenses or estate taxes, rather than forcing heirs to dispose of illiquid assets. For those with estates that may exceed the exemption levels (currently over $13 million per individual, but scheduled to be reduced to about half that on January 1, 2026), an ILIT could also prove useful. Further, since funds paid as a life insurance death benefit are directed to a beneficiary, life insurance can also be useful for providing proceeds in specific ways desired by the insured, such as  retiring debt or providing for a grandchild, a charitable organization, or another entity of special interest.

Also note that if you own cash-value policies (as opposed to term life insurance) and you no longer need to provide a death benefit for dependents, you may wish to consider a cash surrender or policy loan as a means of generating additional assets for investment. With a surrender, the amount in excess of premiums paid will be considered as ordinary income. With a policy loan, as long as the policy remains in force, you will probably not owe taxes on the proceeds, but if the policy lapses, you could owe ordinary income taxes on the amount received in excess of premiums paid. You should consult with your tax advisor if you are considering either of these strategies.

Health insurance

In almost every survey of retirees’ biggest concerns, healthcare costs are at the top of the list. A survey reported in USA Today indicated that 64% of those still working cite healthcare costs as a major worry. Most retirees, of course, will register for Medicare as the means to cover most of their healthcare costs in retirement. Medicare Part A (which covers most hospital costs) is free for most retirees after satisfaction of a $1,600 deductible. Part B (doctor visits and other medical expenses) costs about $165 per month or more, depending on your income, and there is a $262 deductible. Costs for Medicare Part C (“Medicare Advantage Plan”) vary according to the plan you have, as do costs for Medicare Part D, which covers most prescription drugs.

But suppose you are Medicare-eligible but your spouse is younger? If you and your spouse are presently covered under an employer or other plan, you should make sure you’ve obtained coverage for your spouse before you drop the employer coverage and go on Medicare; your spouse will not become eligible until age 65 unless they are disabled. In some cases, you may be able to continue employer-provided coverage, or you may be able to maintain COBRA coverage for your spouse up to 36 months after your employer coverage ends. The other alternative is securing coverage for your spouse through the federal marketplace (available at

Long-term care insurance

As people age, they may reach the point where they require assistance with one or more activities of daily living (ADLs) such as dressing, bathing, toileting, or feeding themselves. Costs for this type of care are typically not covered by Medicare. The problem is that around 70% of persons age 65 and over will require some form of long term care during their lives. Options for long-term care providers include a family member, an in-home health aide, or a skilled nursing facility (nursing home). But such care is often expensive; a home health aide can run more than $5,000 per month, and a room in a skilled nursing facility can cost more than $4,500 per month.

This is why those who are approaching retirement may wish to consider the purchase of long-term care insurance (LTCI). As with life insurance, premiums are based on age and state of health, and also by the benefits offered by the particular plan. Some policies, for example, offer a death benefit, similar to life insurance, that can return some or all of premiums paid if the policy is never used.

At Milestone Money, we understand that a thorough grasp of insurance needs is an important part of thriving in retirement. We work with clients to develop financial strategies that take these and other vital needs into consideration, building the foundation for a secure, meaningful retirement lifestyle. To learn more, visit our website to read our article, “Should a Long-Term Care Policy Be Part of Your Retirement Strategy?”01

What issues should i consider before i retire?

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