By Jeff R. Wilhelm, JD
If you have finally reached the milestone of Medicare, the good news is that the cost of health insurance is likely going down for you while coverage is improving from what you had before. But before you get too excited about this, please consider that there are two other types of insurance that retirees like you may need to consider around age 65 unless you are in a position to self-insure. They are life insurance and long term care insurance. The following is a brief synopsis that focuses on life insurance. To read more about long term care insurance, please visit our Long Term Care page.
Most people think of life insurance as being protection for a young family in the event that the primary bread winner dies, leaving a spouse and children behind. This is indeed a very important reason for life insurance but there are several other good reasons that apply to retirees in particular. Even if you are a retiree who has already prudently saved for retirement, you should strongly consider life insurance unless you have at least $2 million saved for retirement.
If you do not have at least $2 million saved for retirement, there are at least three good reasons for having life insurance as a retiree. The most popular reason but least important is to pay for final expenses such as funeral home costs and burial expenses. Most people do not want to leave their spouse or adult children with $25,000 or so in final expenses when they die. By the time a person is age 65 or older, they should ideally already have saved or set aside enough money for that purpose. If not, then life insurance is a good way to address this need. For more details on this, please go to our, The Truth About Final Expense Insurance, page.
A more important reason for having retiree life insurance is loss of income. The fact that you have retired does not mean that you no longer have income that depends upon you remaining alive. Social Security benefits are a prime example of this in that your benefits under Social Security end when you end. Although Social Security benefits might not be big ($15,000 to $30,000 per year), they are very significant in the financial plan of most people and those benefits are certainly big enough to warrant protection. Consider as an example a retired couple that live on a budget of $45,000 per year. This couple is able to meet their budget with $20,000 from the husband’s Social Security, $15,000 from the wife’s Social Security and $10,000 from investment income. If one of the two spouses dies, the surviving spouse can only keep the greater of just one of the two Social Security incomes ($20,000 per year in this example) and will lose the other ($15,000 per year). That will leave the surviving spouse with a total annual income of just $30,000 versus the $45,000 they were previously living on (a 1/3 reduction). Even though there is one fewer spouse, you can be fairly certain that the surviving spouse’s living expenses will not be reduced by 1/3 as well. The surviving spouse will still have expenses for a place to live, electricity, gas, food, medical, transportation etc. This is where life insurance comes in to fill the need left by the reduced income.
What amount of life insurance is necessary to replace the lost income due to the passing of a spouse such as $15,000 per year for life? Making certain assumptions, the answer is approximately $375,000. So, if you are married and depend on your spouses Social Security benefit, you should strongly consider getting life insurance coverage to cover the risk of losing that benefit, and you should get it sooner than later while you still qualify for a policy based on your health.
The final reason for retiree life insurance is based on meeting the cost of long term care expenses. This is one of those things that you have probably heard over and over again. However, if you are like many people, you have probably not really listened to the facts, including that you have as much as a 69% chance of needing long term care at some point after age 65. That is a 69% chance! If we were talking about rain, you would certainly cancel the family picnic. Further, the cost of long term care is growing every year with the average annual cost for various types of care at:
Considering the average length of need for one or more of these annual costs is about three years, that puts the total cost to you of the risk of long term care at about $160,200 for assisted living, $210,240 for home health care and $246,375 for nursing home care. Do you have either long term care insurance in place or that much discretionary money set aside that is not needed for investment returns and retirement income? If not, get some long term care insurance. This is especially important if you are single and will not have a spouse to help care for you when the need arises. If long term care insurance is not a viable option for you because you cannot afford it or you do not qualify for it due to health issues, life insurance can help to some extent in long term care planning. When you die, the death benefit can at least help pay back the surviving spouse or your adult children for the long term care expenses that have been incurred for your benefit. Although life insurance is something of an after the fact remedy, it is still much better than impoverishing your family.
Whether you have already retired or if retirement is just over the horizon, you should consider now the important role that life insurance plays in retirement. Whether you are on a tight budget or just not a big fan of insurance, at least consider that some insurance is better than none at all. You might not want or be able to afford a life insurance policy for the full risk but at least get some insurance to help soften the financial blow to your spouse when you die. The sooner you act, the less expensive the life insurance will be and the more likely you will medically qualify to get a policy. It can never be too early but you can certainly be too late.
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Prescott Health and Life is the quad-city areas independent insurance specialist agency. We represent over forty of the nation's top insurance carriers. We will research and work with you to find the insurance plan that fits your lifestyle and budget.
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