Insurance you'll still need in retirement
Once you're retired, you typically don't need disability or life insurance to replace your wages. You'll be living off other sources of income: your savings, any pensions, Social Security (with some exceptions -- more on that in a moment).
However, you really need to keep some policies in place even after you quit working. These include:
Liability insurance. You don't want to get to retirement only to be wiped out by an unexpected lawsuit. Liability coverage pays the costs if you cause an accident, your dog bites someone or you're otherwise found at fault for injury. Financial planners typically recommend having liability coverage at least equal to your net worth and preferably twice your net worth.
Trial attorneys will typically settle for the amount of your coverage if you're adequately insured. If you're not, they'll be motivated to go after your other assets. Your retirement savings are safe from creditors' claims, but other assets -- including some or all of your home equity, depending on state law -- are up for grabs.
Liability is part of your auto and homeowners' insurance, but the limits on your coverage may be too low. If so, consider adding an umbrella or personal liability policy that kicks in once your other coverage is exhausted. The first $1 million of coverage typically costs around $300 a year, with the next million costing about $75 and a third million $50, according to the Insurance Information Institute.
Health insurance. Medicare provides health insurance for the vast majority of people 65 and over, but the federal government program covers only about 60 percent of retirees' health care costs, according to the Employee Benefit Research Institute. Health care spending eats up 15 percent of the typical Medicare recipient's household spending, and EBRI calculates that a 65-year-old couple with median drug expenses would need $234,000 in savings just to have a 50 percent chance of having enough to cover health care costs in retirement.
If you don't have employer or retiree health insurance to supplement Medicare, you might want to consider buying one of 10 available Medigap plans offered by private insurers.
If you're under 65 and don't have health insurance from another source, you can buy an individual policy. If you can qualify for a government subsidy (and most people can), you should shop through an Obamacare exchange -- your state's version, if it provides one, or the federal exchange. Under Obamacare, everyone can get coverage -- you can't be denied or charged more because of preexisting conditions.
Disaster insurance. Even if you haven't quite got your mortgage paid off, chances are you have substantial equity in your home. Your home's value likely is a major part of your wealth and may be a resource you can tap in the future to fund your retirement.
But your homeowners' insurance may not offer enough protection. It doesn't cover floods, for example, or earthquakes in areas at high risk for those disasters. While homeowners' policies typically cover wind damage, you may need separate coverage to protect against hurricanes.
Disaster polices often come with high deductibles, so make sure you have enough cash set aside in an emergency fund to cover those.
Some other coverage you might want to consider:
Long-term care insurance. Medicare doesn't cover most nursing home or other "custodial care" expenses if you're not able to take care of yourself. The cost of long-term care can be astronomical, but so can the cost of insurance to pay for it. The best time to buy this coverage, if you can afford it, is in your mid-50s, according to the American Association of Long-Term Care Insurance and many financial planners.
If you're interested, look for an independent insurance professional who specializes in helping people compare policies. Also consider consulting a fee-only financial planner to make sure it's the right fit.
Life insurance. You need coverage if you still have people financially dependent on you, such as minor, special-needs children or a spouse who wouldn't be able to pay the bills if you died. You also may want a policy if your estate is so large that it would owe estate taxes (currently, estates worth more than $5.43 million). If that's the case, talk to an estate-planning attorney who can help you minimize taxes and find appropriate coverage.
