How to Assess Your Insurance Needs before and during Retirement

How to Assess Your Insurance Needs before and during Retirement

One of the mistakes that people make in their retirement preparations involves insurance coverage. Some people find themselves short of cash if they have too much coverage, while others may end up with a huge healthcare expense if they are not properly covered.

Insurance needs often change quite a bit in the years leading up to retirement, not to mention once you have stopped working regularly. It’s smart to set aside time to review your insurance regularly, make sure you have appropriate coverage, and think about ways to reduce your costs, especially if you are covered for things that are no longer as much of a concern.

What to Know about Medicare Coverage in Retirement


Individuals become eligible for Medicare coverage once they turn 65. In fact, they have the three months before they turn 65 and the three months after to enroll. You can enroll even if you are still working and covered by an employer’s policy, as it will save you money in the long run.

Medicare is divided into two parts. Part A covers hospital stays while Part B covers physician visits. Those who are claiming Social Security are enrolled in Medicare automatically, but others will need to sign up during the seven-month initial enrollment period mentioned above. If you do not retire during this period, you will face a late enrollment penalty, which is a 10 percent increase in Part B premiums for each 12-month period that passes. Part A does not usually come with a premium.

If you do not start using Medicare until 68 because you rely on employer insurance, you will end up paying 30 percent more for Part B premiums than if you had enrolled at 65. This increase applies for as long as you use Medicare, which will likely be the rest of your life. While the premiums are affordable, as a retiree you will need to keep your budget as tight as possible, so why pay money you don’t need to?

Medicare also includes Part D, a prescription drug plan. You will pay a 1 percent penalty for each full month you didn’t have Part D coverage but were eligible. Again, the increase stays as long as you continue to use the policy.

Other Considerations for Health Insurance in Retirement

Many people believe that Medicare makes health care free. However, Part A and Part B both have deductibles and copays, and costs can quickly add up. To cover the costs, you can enroll in a Medicare Supplement Insurance plan, otherwise known as Medigap. These plans come from private insurers but are regulated by the federal government.

While the plans from different insurers vary in terms of cost and coverage, they are all designed to fill gaps caused by the Medicare system. The Medigap plans also become more expensive if you don’t enroll soon after turning 65, so if you want coverage you should enroll when you are eligible. Also, Medigap insurers cannot deny coverage for preexisting conditions during the first six months after you turn 65, but they can after that point.

Some individuals may want to forego normal Medicare and Medigap for Part C, or Medicare Advantage Plans, which have lower premiums and may include vision and dental coverage. These plans can be good for some, but people who develop serious or chronic conditions may find the coverage lacking. You can always switch to traditional Medicare down the line, but you may not be able to get Medigap at the point, which means a lot of out-of-pocket costs.

Also, Medicare does not cover long-term care, which is quite expensive. You should think about purchasing long-term care insurance before retirement. Your premiums will be lower when you enroll in your 50s rather than your 60s, as you are likely to be in better health. However, people already in poor health will pay higher premiums no matter what age they are, plus long-term care insurers can deny them outright.

The Additional Types of Insurance Needed in Retirement

While health care is a major concern for most retirees, other insurance needs will also arise. One need that people have likely been paying their entire lives is vehicle insurance. Once retired, you should reassess the need for vehicle coverage or try to negotiate lower rates since you are likely not using your vehicle very often (mileage is a major factor in assessing premiums).

Homeowners will still need to carry an insurance policy, but companies sometimes offer discounts for older individuals. Also, it may make sense to increase deductibles once you are retired to save money on premiums if your home is in good shape. If not, low deductibles probably make more sense.

You should also assess your need for life insurance in retirement. You likely do not need life insurance if your children are grown and no longer rely on income from you or if your spouse or partner will continue to get Social Security benefits after your death. Consider your nest egg and the Social Security benefit before deciding if you need life insurance. Many retirees end up dropping these policies later in life.