May 26, 2017

Retirement and Insurance: Do We Need It?



When I retire do I need insurance is a question that I am asked with some regularity.  Well, that should be simple. You have retired. Your need for anything other than Medicare, auto, home or other health insurance is over, right?

Not so fast. 

There are at least five different insurance products that may be important to your retirement financial planning. Let's take a look at each one:


Medicare Supplemental Insurance

Medicare is a tremendous health insurance program for those 65 and older.  It is a blessing after years of dealing with the complicated mess that is the American health insurance system. Even so, you must be aware that Medicare does not cover some important expenses. The Original version usually covers only 80% of your expenses. While that seems quite generous, an expensive hospital stay or operation could means you are responsible for thousands, or even tens of thousands of dollars in costs. Medicare does not pay for most drugs. It doesn't cover long term care. 

To help with these issues you need to add supplemental insurance to the monthly package of Part A and Part B. A supplemental policy can cover the 20% that Medicare does not. It can provide extra services that are not part of Medicare. Another type of coverage, Part D, helps with prescription drug expenses. 

Medicare Explained is a post from a few years ago that will give a quick overview. 

Life Insurance

This category of insurance seems simple to answer. If you are retired, any children are raised and gone, and you have investments, a pension, IRA, Social Security, or other form of income, what possible need would you have for insurance if you die unexpectedly? 

For many of us, the answer is none. However, there are situations when owning a life insurance policy after retirement is prudent. Caring for a disabled child, protecting your family while you are still working, as part of an estate, or funding a charitable legacy after your death are a few of the reasons why maintaining life insurance after retirement may be wise. 

CNBC has an overview of these possibilities at this web address: When it makes sense for retirees to have life insurance 

Long term Care Insurance

This is the type of insurance that generates the most email questions to this blog. It is also the hardest to give a satisfactory answer to. An insurance product that provides a fixed, monthly sum to help cover the rapidly rising cost of long term care seems as if it should be part of of our financial planning. Standard Medicare and supplemental insurance policies provide only limited help. With expenses as high as $10,000 a month, it would be easy to have a healthy nest egg wiped out rather quickly. 

Unfortunately, the companies that provide this type of coverage have discovered the problem: costs are so high and surging so quickly that these policies quickly become serious cash drains. Several companies that once sold LTC policies no longer offer them. Customers who have paid premiums for years suddenly are left with no coverage and all that premium money gone. Or, if the insurance company doesn't pull the plug, it may raise the premiums to the point of unaffordability. A customer who stops paying is without coverage and loses all the money spent up to that point. 

The final decision is a very personal one, based on your financial resources and other options or concerns. For a good review of the pros and cons of LTC insurance read this article: LTC insurance: is it worth it?

Pre-need (funeral) Insurance

To protect family members from the costs associated with your passing, a specialized type of insurance is available that pays for funeral and burial expenses, the cost of a plot, and a service. Social Security does provide a small amount of money upon your death, but not even enough to cover a simple cremation.

Often sold by an individual funeral home, these policies come with their own supporters and detractors. Like any insurance product, the delivery of what you have paid for depends on the viability of the company that sold it to you. With the average funeral costing between $7,000 and $10,000 (and easily double that for a top of the line casket plus the cost of the actual burial plot), is this type of insurance worth the cost? 

For a clear-eyed overview of this type of insurance click here: Do I need Pre-Need Insurance?


Travel Insurance

This is a type of insurance most of us probably don't consider. Maybe trip cancellation coverage makes sense when booking an expensive cruise or European jaunt. After all, we can't predict an illness or change in circumstances that make taking that trip a real hardship. Not surprisingly, though, even these straightforward policies have a fair number of exclusions and small print.

But, once you leave for the trip of a lifetime, you are focused on the memories and fun ahead, not the problems. But, what if you become ill overseas, find yourself needing a medical evacuation, face 2 weeks without your luggage....travel is not a risk-free adventure.

Someone will be happy to sell you an insurance policy that covers most of those travel-based disasters. But, should you?  Read Do I need senior travel insurance?  to help you decide before that cruise down the Danube River if such a policy is worth it to you.



Insurance is not the most pleasant subject to consider at any age. After all, it's purpose is to help you make your life right again after a major catastrophe. After retirement, it can take on greater importance. Without income to help you rebuild your financial house, having the proper insurance can become the difference between the continuation of a satisfying retirement and financial devastation. 



13 comments:

  1. Bob - Great food for thought!

    But I think you maybe missing one type of insurance - Liability or Umbrella insurance. If you have significant assets, somebody can sue you for liability and wipe out your assets. Mrs. Freaky Frugal and I have an Umbrella policy equal to slightly more than our total assets.

    ReplyDelete
    Replies
    1. Thanks for mentioning this type of policy. I maintained one during my working years and when we had young children living at home. A liability policy is not terribly expensive and can give the owner a layer of protection in a very lawsuit-oriented society.

      Delete
  2. I was happy that my father had prepaid his cremation expenses and had picked out an urn. We had moved him to live near us in another state, and the funeral home there took that particular plan. The expenses were lower in that area so we even got money back.

    ReplyDelete
    Replies
    1. Thanks for sharing. As your situation points out, this type of policy has its place.

      Delete
  3. Hi Bob, since your comments are kind of light for this post I thought I would chime in with a possible contrarian view.

    I am beginning to wonder whether Supplemental and Part D are really worth the costs? Here is my example: My recent brain trauma came out to about $45k in billed medical expenses but Medicare only allowed about $10K so the supplemental ended up paying about $2000. That equals less than a year's worth of monthly payments. It is really the first time they have had to pay more than a few dollars per year in the five years I have been paying. So, if you add it up I paid almost $10k in insurance payments for about $2500 out so far.

    And then there is the Part D. I am on about 8 maintenance drugs now and Part D only covers 2 of them at any level for about $30/month and I pay about $150/month for my meds.

    I know at the end-of-life medical bills in excess of $300K (knocked down to about $100k by Medicare) are not unusual for the last two weeks or so. But are all those payments in the mean time really worth it?

    Yes, even we seniors on Medicare have some serious decisions to make regarding insurance needs.

    ReplyDelete
    Replies
    1. "Informational" posts like this generally generate a lot fewer comments though the number of views is steady. Even so, I appreciate your thoughtfulness!

      You raise an important point: each of us should do his/her own research and take an educated guess about the value of a particular insurance product. Even though I know I have not received back what I have paid in premiums for supplemental and Part D so far, I continue to pay so I don't have to worry about any out-of-pocket costs for hospital and doctor care and feel I will be better off if I ever need expensive drugs. So, I am paying for peace of mind even though economically it may not be wise.

      Delete
  4. Thank you Bob! I know I was one that had asked you about views on Life Insurance and/or Funeral Insurance. I appreciate the information you are giving us and the links you provide. I will be reading and researching what you have found.

    We have decided, for the moment at least, to earmark a certain portion of our savings to be specifically for "final expenses" as I'm not yet comfortable with those type of policies or even buying a plan in advance with too many unknowns in the future. I am concerned about putting money into something that could go out of business or otherwise fail to be what we thought it would be for us.

    As far as Medicare, well we are just now crossing that bridge. My husband's Medicare starts in June and mine will start in August. We have done a lot of research because my husband has some heart issues and takes a large number of fairly expensive prescriptions each month. Like you have said, the way we handle our health insurance in retirement can greatly be affected by our individual situation. After much research we have decided to go with a Medicare Replacement plan rather than a Supplement. Our reason for doing this is because in our situation it is less expensive to go with a Medicare Replacement plan. We will still have the same amount deducted from our Social Security as we would for Medicare A & B and we will each pay an additional $32 a month. For us a supplemental plan would cost more and still may not give the prescription coverage we need. At least it all sounds good for now - I will let you know if it does turn out to be the best decision for us after we have had it for some time!

    Thanks again Bob for your blog and your help!


    ReplyDelete
    Replies
    1. Yes, Bonnie, it was your question that prompted this post.

      A Medicare Advantage plan is a good choice for many. It usually includes more benefits than standard Medicare and supplemental coverage. In your case it sounds like the right decision. Of course, you can change back to regular Medicare once every year, so no decision is irreversible.

      Delete
    2. A couple of nuances here:
      (1) An Advantage plan may be less expensive, but it functions like an HMO in that it limits your provider choices to a particular network, so you have to be confident that all the specialists and hospitals you might need are within that network. A Supplement plan lets you choose any provider who accepts Medicare without going through a "gatekeeper."
      (2) Yes, you can go back to plain-vanilla Medicare every year, but if you want to switch to a Supplement plan at that point, you'll likely have to undergo a medical exam to qualify (and you the insurance companies can decline coverage). In contrast, you are guaranteed approval (and renewability) if you sign up for a Supplement plan within (I think) six months of enrolling in Medicare, even with pre-existing conditions.

      Delete
  5. I live in Canada so can't speak to U.S. Medicare options but It seems to me travel medical insurance is a must unless U.S. Medicare covers you while outside of the U.S. I know the Canadian medical system essentially only covers you while you are in Canada and I wouldn't think of leaving the country without having out-of-country medical insurance. Trip cancellation is optional in my view as your loss is limited to the cost of the trip but end up in I.C.U. for several weeks without coverage and costs could be astronomical.

    For long term care I included a link below that discusses long term care, it's costs, and that long term care insurance may not be necessary. It is of course written for a Canadian audience but draws on U.S and international studies for it statistics and conclusions.

    I hope this is helpful. => http://business.financialpost.com/personal-finance/family-finance/why-your-retirement-income-doesnt-need-to-keep-pace-with-inflation

    - David

    ReplyDelete
    Replies
    1. You are correct, David. Medicare does not cover illness or injury in foreign countries except for a few, very limited exceptions. Medicare supplemental insurance does cover up to 80% if you have certain plans. Medicare Advantage plans don't even provide coverage for travel inside the U.S., except for certain kinds of emergency care, and even then the cost can be high because you are likely out of network.

      For me at least, travel insurance that covers illness, injury, and medical evacuation is essential when I travel outside the U.S. or its territories.

      Delete
  6. Hospitals in Mexico often won't take your insurance. The patients are asked for cash and told to submit their bills to the insurance when they get back to the US. The last two incidents I heard about was a stomach surgery that required $35,000 on a credit a car and a heart surgery that was $45,000. It is advisable to have a few credit cards with large amounts of credit available for incidents like this. You can't make a hospital in another country take your insurance. Eventually you get reimbursed but your life is in danger if you can't come up with the cash.

    ReplyDelete
    Replies
    1. Good to know. Thanks, Karen.

      We knew someone who had a serious medical issue while on a cruise in the Mediterranean and did not have the proper coverage. He had a major stroke and was stuck there for over a month before he could get transport home. We believe that delay and the stress of the costs shortened his life.

      Delete

Inappropriate comments will be deleted