Insurance Policies You Need in Retirement – and Some You Probably Don’t
NOTE: This page is about general insurance needs in retirement. For more detailed information about healthcare insurance in retirement, please visit our health insurance page.
When you retire, your lifestyle suddenly changes. You don’t need to commute to work, and you have newfound freedom to set your schedule and pursue new hobbies. Your financial situation changes as well, and this means your insurance needs will change.
Although you may not see the need to continue some insurance policies, don’t be too quick to cancel them until you consider all of the implications. Sometimes you can continue an existing policy but use it for a different goal, for example, life insurance.
This article describes various types of insurance and whether you need each in retirement. Each retiree’s situation is different, so you may want to consult a qualified financial advisor if you have specific questions.
Insurance You Need
Health Insurance
We all need healthcare, and most of us need health insurance to cover the costs. As we age, our healthcare expenditures usually increase. Retirees aged 65 and over are eligible for Medicare. But Medicare doesn’t cover all of your costs, so most retirees purchase a supplemental plan like Medigap to pay for services and costs that Medicare doesn’t cover.
Many workers are also covered under their employer’s health insurance. If you’re still eligible to keep employee health insurance as a retiree, it may be the best option if the coverage is more comprehensive and the group rate is better than what you can get elsewhere. If you no longer have employer-sponsored health insurance but are not yet Medicare-eligible, you have several options for obtaining healthcare coverage.
Homeowners or Renters Insurance
Another one you almost certainly will want to keep in retirement. If your mortgage is paid off, you may be tempted to cancel your homeowners policy to save money. But this can be a shortsighted decision. If you lose your home and possessions to a fire or natural disaster, your only other way to make up for the loss is through your savings.
If your lifestyle changes after retirement, for example, if you plan to start a home-based business, or you plan to have guests over frequently, you may want to modify your policy or liability limits. If you relocate [LINK] to a new area, there may be hazards you didn’t have in your old location, like earthquakes and hurricanes, or you may need flood insurance.
Auto Insurance
All states except New Hampshire and Virginia require auto insurance. Each state sets the minimum coverage car owners must carry to legally drive on public roads. Also, most car dealerships won’t allow you to drive a vehicle you just bought off the lot without insurance, and most lenders require insurance for car loans. Auto insurance is a wise investment even if it’s not legally required, because without it the only way to recoup your loss if your vehicle is stolen or damaged is through personal savings.
Insurance You May Consider
Umbrella Liability Insurance
Umbrella insurance increases your liability coverage beyond what your homeowners or renters and auto insurance provide. An umbrella policy isn’t typically purchased on its own; rather, it’s an addition to other existing insurance like homeowners. If the value of your assets, including savings accounts and investment properties exceeds the liability limits of your other insurance, then you might consider umbrella insurance. Umbrella insurance may also provide other coverages, such as for libel or slander. An unforeseeable car accident that results in court proceedings, a mishap involving a guest on your property, or even a remark posted on the Internet that leads to a lawsuit for libel are instances where umbrella insurance may be helpful.
Depending on your lifestyle and hobbies, you may have a greater need for umbrella insurance. If you own a certain breed of dog, coach youth sports, serve on a residential committee, or ski or hunt, you may consider purchasing umbrella insurance.
Life Insurance
You may have purchased a life insurance policy to replace your working income for your spouse and children. If you’re retired and no longer have earned income, you may be wondering whether to keep your life insurance policy. Or you may have had group life insurance through your former employer and are wondering whether to purchase a new policy.
Why to Keep Life Insurance
Here are several situations in which you may consider keeping or taking out a life insurance policy:
- To cover your final expenses. The median cost of a funeral in the U.S. in 2023 is $7,848 and can be $8,500 in some states. There may also be medical and legal costs in paying hospital bills and handling your will and estate. Unless you have sufficient savings or choose to prepay your funeral expenses, a small life insurance policy would cover these costs and relieve your family of the burden.
- You have income your family depends on. If you have working income, you likely have a good idea of how much coverage you need. On the other hand, if you’re retired and don’t depend on earned income and your children are grown and independent, you may not need life insurance. Your beneficiaries will inherit your savings accounts, and Social Security has survivors benefits. You will need to determine the amount of the survivor benefits and also the tax implications to your beneficiaries when they inherit your IRAs and other savings. If you want to avoid estate taxes, a life insurance policy may be a good tax-free way to pass on funds to your heirs.
- You have debts. Around 60% of households headed by an adult aged 65 or over had debts in 2016. These included home mortgages, medical bills, car loans, and credit card debt. Unless your savings are sufficient to cover any debts without financial difficulty, a life insurance policy may be helpful.
Some hybrid life insurance policies enable you to use some of the funds while you’re alive, for example, for medical or long-term care expenses. If you have a whole life or universal life policy, you might be able to add a long-term care rider.
This video describes some reasons you might decide to keep your life insurance in retirement:
Long-Term Care Insurance
Around 70% of people aged 65 and over will need long-term care sometime in their lives. Traditional long-term care insurance is one of the options for pre-planning for this need. Contrary to what many people think, Medicare doesn’t cover long-term care in an assisted living facility or at home. Some employers offer long-term care insurance, and you may also be able to get a group rate through an organization you belong to. There are many long-term care insurance providers, and there are other options for funding long-term care. You can consult an insurance advisor about your particular situation.
For more information about long-term care, visit our Long-Term Care page.
Travel Insurance
If you plan to travel extensively in retirement, especially to foreign countries, travel insurance may be useful. A comprehensive policy that includes emergency medical care and medical evacuation services as well as trip delay and cancellation insurance may be most cost-effective.
Critical Illness Insurance
Critical illness insurance is a relatively new product that was introduced in 1996. It is intended to cover the costs of treating life-threatening conditions like heart disease, stroke, kidney failure, and cancer. Health insurance does cover some of these costs, but with the high-deductible plans that are common today, patients and their families might still be left with large medical bills. Furthermore, there are other, nonmedical costs associated with treatment, like transportation to and from treatment facilities, retrofitting vehicles to accommodate scooters or wheelchairs, and modifying a home for wheelchairs.
Critical illness insurance typically pays out benefits as a lump sum that can be used for any purpose like utilities, mortgage or rent payments, transportation, or even a vacation while you recover. This insurance is typically inexpensive, much less than the premiums for a low-deductible healthcare policy.
The drawbacks are that it usually only covers a specific set of illnesses, there may be age limitations, and payment is not guaranteed. For these reasons, many advisors suggest foregoing critical illness insurance in favor of a more comprehensive healthcare policy.
Investopedia provides more information about critical illness insurance.
Identity Theft Protection
Scams against older Americans are on the rise. The annual loss from financial fraud among adults aged 60 is estimated at $3 billion per year, and the average loss per incident is $120,000, according to a 2020 study by the AARP Public Policy Institute. The FBI reports that losses more than doubled from 2019 to 2021 and rose another 84% in 2022. Identity theft is among the more costly crimes: AARP reported that 42 million Americans were victims of identity fraud in 2021 and collectively lost $52 billion to identity thieves.
Besides the financial cost, recovering from identity theft can take substantial time and effort, including repairing your credit history and negotiating with banks and vendors. With an identity theft protection policy in place, the provider will help you recover and monitor your credit report to prevent future incidents.
Professional Liability Insurance
If you’re thinking of opening a business or taking employment in retirement that involves professional services and advice to clients, this insurance may be helpful. Umbrella insurance typically doesn’t cover lawsuits and claims for professional and business services. So if you plan to take a retirement occupation as an accountant, financial advisor, graphic designer, realtor, or marketing consultant, to name a few, this coverage can keep you from having to pay out of pocket for legal defense costs and settlements.
Pet Insurance
If you love your furry, four-legged friend like a member of your family, you want to give your pet the best care you can. Unfortunately, the cost of quality veterinary care can add up to thousands of dollars. This can force you to have to decide between your pet’s health and your pocketbook.
May pet owners find pet insurance provides peace of mind, even comparable to health insurance for themselves and their families. You can decide whether this insurance is right for you based on your ability and willingness to pay out of pocket for an unforeseen pet illness or injury that may require surgery or other extensive treatment.
Need guidance on deciding whether to get pet insurance or choosing a policy? This video might help:
Insurance You Probably Don’t Need as a Retiree
Disability Insurance
You may have had disability insurance to replace your income if you became unable to work. If you’re in your 60s and retired, you no longer need disability insurance because you no longer have working income. Most disability insurance ends at around age 65 in any case, and above that age you probably can’t get it, or if you can, the premiums are excessive.
If you’re still working in your 60s or embarking on a new career, as many retirees are, you may qualify for group disability insurance through your employer. It may have lower coverage limits and shorter benefit terms than an individual disability insurance policy. But it could help you pay for some living expenses.
Social Security Disability Insurance
People unable to work because of illness or injury are eligible for Social Security Disability Insurance (SSDI), but for most older adults, it may not be worth it. This is because applying for SSDI is complex and time-consuming, and it’s difficult to be approved because the Social Security Administration’s definition of disability is stricter than for most private disability insurance. If you’re also receiving Social Security retirement benefits, your SSDI is reduced based on your retirement benefits. If you’re at or above your full retirement age, SSDI benefits are no longer payable.
But if you’re in your early 60s, working, and not yet receiving Social Security retirement benefits, then applying for SSDI might make sense if you become disabled. If you’re at least 62, you can file for both Social Security retirement benefits and SSDI and ideally receive both until you reach full retirement age.