Are You Overpaying On Insurance In Retirement? 4 Signs The Answer Might Be “Yes”

Insurance is designed to provide financial protection for you and your family, but retaining the right amount of coverage can be a bit of a balancing act. Why? Because overpaying for coverage might give away too much of your nest egg to insurance companies.

Here are four signs that you may be overpaying on your policies and strategies to consider.

Sign #1: You’re Still Paying For Life Insurance

The primary purpose of life insurance is to replace your income if you pass away. If other people, like a spouse and children, rely on your income, life insurance may offer them a financial safety net.

Families in the wealth accumulation stage tend to be the most at-risk of financial turmoil in the event of an unexpected death. This is because individuals in their 30s, 40s, and 50s are most likely to have debts such as mortgages, student loans, personal loans, or car payments, as well as dependents, including children and spouses.

But by the time you retire, your needs for income protection may change. As a financially independent retiree, you and your family may not depend on income from a job to meet your needs—you have your investments, Social Security, and other income sources. Because of this, income replacement might not be a top financial priority.

If You Have a Term Policy

Term policies expire after a set period. If the policy is still far from its expiration date, it may make sense to cancel it altogether if your needs have changed. 

If you do that, consider redirecting the money you were paying for your premiums toward something more aligned with your needs in retirement, such as investing in the market or growing your savings. Remember, this is simply one option, and it may not be suitable for you, so work with your advisor to make a tailored plan.

If You Have a Whole Life Policy

While many of our clients may benefit from term life insurance, some prefer to have whole/permanent policies. Because permanent policies have the opportunity to gain cash value over time, work with your financial advisor and/or insurance agent to determine the best course of action. 

Retaining your whole life policy may make sense because of the death benefit and potential value growth. Plus, withdrawing from your policy or selling it could trigger a taxable event. This is something to consider carefully with your accountant or financial professional before making any decisions.

Sign #2: Long-Term Care Insurance Eats Its Way Into Your Monthly Cash Flow 

About 70 percent of people over 65 will require long-term care at some point in their lives.¹ Long-term care insurance may be a way to help cover this costly care. But is it more trouble than it’s worth? For some, it might be.

Long-term care premiums tend to be expensive. And the longer you wait to apply, the more likely you’ll have higher premiums. Generally speaking, it’s ideal to apply while you’re in your mid-50s. By the time you turn 60, costs can skyrocket. 

Long-term care premiums are typically only guaranteed for a set period, meaning the premium rates you receive in your 50s could eventually increase anyway. Not to mention, there are often daily expense limits or lifetime maximum payouts to understand. 

The Bottom Line

Long-term care insurance policies are often sold as a necessary piece of the retirement puzzle, but they can be complex and might not be worth the cost. 

Long-term care insurance doesn’t offer a death benefit for beneficiaries, which means it’s not an effective way to pass money on to your heirs either. 

If you’re concerned about a future need for long-term care and have a whole life insurance policy, adding a rider to the existing policy may be possible. This route allows you to draw tax-free from the death benefit of your policy to cover long-term care costs.

If you and your financial team decide that a long-term care policy might not be a suitable option, there may be some other funding considerations:

• Reallocating the money you would have put toward premiums into the stock market or supplement other areas of your financial plan like an emergency fund or other savings goals. 
• Leveraging your HSA if you have one. Typically, you can use HSA funds to cover some long-term care costs, including insurance premiums. 
• Creating a plan for health expenses in your retirement cash flow plan.

There can be numerous ways to plan for long-term care, depending on your budget, health, dependents, and goals. 

Sign #3: You’re Not On An Appropriate Medicare Plan For You

The Medicare system may be complex, which can make it difficult to enroll in an appropriate plan for your health and budget.

If you haven’t reviewed your coverage in a while, take some time to see what you’re paying and if you’re using the benefits. You may find that a lower coverage plan would serve you best. Or, maybe switching to a supplement plan instead of an advantage plan would better fit your budget.

Luckily, open enrollment is next month (October 15 through December 7). So do your research now, speak with your advisor, and decide if it makes sense to switch. Don’t be afraid to shop around; it could be worth it.

Sign #4: You Haven’t Reviewed Your Home Insurance Policy In Years

Annual increases on your home insurance policy can add up over time, especially if you’ve lived in the same house for decades. Seniors who regularly review and adjust their insurance policies can save an average of $751 in policy premiums.² 

Instead of sticking with the same policy and coverage, see what’s out there. You may be able to cut some costs by switching to a new policy. Many insurance companies also offer bundles. Participants can get a discount on their premiums by bundling home and auto insurance.

Work With a Team to Protect Your Retirement Savings

Imagine reducing your insurance premiums. What could you do with that money? Perhaps you’d put it towards investments, growing your savings, or helping a grandchild go to college.

If you could benefit from a second look at your current policies, don’t hesitate to reach out. Our team is happy to review your coverage.

Sources:

1Understanding Long-Term Care

2Seniors are more susceptible to overpaying for home insurance

*Guarantees are based on the claims paying ability of the insurance companies.

^{Advisory services are offered through Legacy Wealth Advisors, LLC dba Legacy Wealth Advisors, an Investment Advisor in the State of Michigan. Insurance products and services are offered through independent insurance agents. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Michigan or where otherwise legally permitted.}

^{All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Legacy Wealth Advisors does not offer tax planning or legal services but may provide references to tax services or legal providers. Legacy Wealth Advisors may also work with your attorney or independent tax or legal counsel. Please consult a qualified professional for assistance with these matters.}