Our featured article of the month, Insurance Needs Assessment: For Empty Nesters and Retirees, outlines the primary insurance coverages one should review as the kids leave the nest and retirement is within view. While the purpose of some coverages may change, some usefulness for them can still be found.
For instance, Homeowner’s Insurance certainly provides value even if the mortgage is paid off. With the cost of rebuilding and the cost of replacement of personal property, HOI presents a very good value.
On the other hand, Disability Insurance’s sole purpose is to protect your ability to earn an income to support your household while working. Upon retirement, a policyholder can no longer justify the need for such coverage. Typically, coverage will expire at ages 65 or 67 anyway.
In place of DI coverage, many retirees find it prudent to purchase a Long Term Care insurance policy. LTC insurance is commonly purchased by individuals in their 50s or 60s due to health underwriting requirements and premium affordability. Purchasing it before your 50s usually doesn’t provide the necessary savings to justify the cost unless you have a potential health concern or family history that could render you uninsurable. If you need a better understanding of the implications of a long-term care event, read our previously published Understanding Extended Care article. A long-term care insurance shopper’s guide is included at the end of the article.
A question I commonly receive is about whether life insurance is worth keeping during retirement. Practically speaking, even with estates that would likely not exceed federal estate tax limits, for 2025, the federal estate tax exemption limit is $13.99 million for individuals and $27.98 million for married couples, life insurance proceeds can provide quick access to cash for various final expenses. The liquidity would allow beneficiaries to avoid being forced to sell assets or immediately probate the Will to access needed liquidity.
For instance, a beneficiary who primarily inherits an IRA may not wish to sell IRA-held assets to pay for final expenses or state inheritance taxes where applicable. The tax cost could significantly reduce the benefit of inheriting the tax-favored investment. For further reading, read the article Consider Keeping Your Life Insurance When You Retire.
With the children now out of the house, financial priorities become more focused on preparing for retirement. At this stage, you may very likely be at the height of your earning power and fast approaching peak savings as you lay the groundwork for retirement. During this final leg to retirement—and throughout your retirement period—wealth protection is critical.
The preservation of your assets may not be solely a function of your investment strategy, but may include a comprehensive insurance approach to protect you against an array of financial risks, most especially health care.
In addition to wealth protection, you can also now be seriously contemplating a number of important estate and legacy objectives.
Home
Even though your mortgage may be paid off—and thus released of the lender’s requirement to have homeowners insurance—it remains important to consider coverage against property loss and exposure to personal liability. Now is an ideal time to review your policy as the cost of replacing your home and the belongings contained therein may have grown over the years.
Also, consider an umbrella policy, which is designed to help protect against the financial risk of personal liability.
Health
There are several key health insurance issues facing empty nesters and retirees.
If you retire prior to age 65 when Medicare coverage is set to begin, you will need coverage to bridge the gap between when you retire and when you turn 65. If your spouse continues to work, you may want to consider getting yourself added to his or her plan, though you may need to wait until the employer’s annual enrollment period.
Alternatively, you also may purchase coverage through a private insurer or through HealthCare.gov (or your state’s program, if available).
Once you enroll in Medicare, you should consider purchasing Part D of Medicare, the Medicare Prescription Drug Plan, which can help you save money on prescriptions.
Additionally, you may want to consider other Medigap insurance, which is designed to pay for medical care not covered by Medicare. Medigap plans are bought through private insurance companies and best purchased within the first six months of turning age 65 in an effort to get the best price and the most choices.
Disability
This coverage may continue until you retire. When you stop working, you should consider canceling your disability insurance as the need for it has expired.
Life
The financial obligations that drove your life insurance needs while you were raising a family may have evaporated. However, you may find new needs arising from estate issues, such as liquidity, creating a legacy, etc.
Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
Extended Care
For some, extended care insurance is a priority in this stage of life. With the expense of children in the rearview mirror, you can now turn your focus to buying protection against potentially the most significant health-care expense you are likely to face in retirement.
Designed to pay for chronic, long-lasting illnesses and regular care, whether in-home or at a nursing home, extended care insurance coverage is critically important since most of these costs are not covered by Medicare.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.