This article was reviewed by Jay Brecknell, CFP®.
Insurance isn’t something we typically think about often. And that’s the point. Insurance exists so you don’t have to panic when the unexpected happens. It helps protect you and gives you peace of mind. For many of us, our insurance needs are largely provided by our employers. But how does that change when you retire?
We’re going to explore some of the common types of insurance that you’ll be responsible for in your retirement and give you suggestions to best prepare for the future.
What is insurance?
In everyday language, insurance helps protect you from financial loss. It is a type of risk management that primarily hedges against the risk of a contingent or uncertain loss.
There are multiple types of insurance. Some of the most common include:
- Medical and dental insurance
- Life insurance
- Disability insurance
- House insurance
- Travel insurance
What are the biggest changes to insurance once you’ve retired?
Retirement is a key life event. Transitioning from the working world to one with more time to relax and explore passions is a big shift, and definitely requires some planning for you to get the most out of it. Once you retire, what does that mean for your insurance? You’re typically no longer covered by your previous employer, and you are now also responsible for making sure you and your family have the appropriate coverage.
There are many things to consider including:
- Who do you require coverage for?
- How has your lifestyle changed with retirement?
- Is there any coverage you previously had that you no longer require?
- Is there any coverage that you previously didn’t have that you now need?
Every family and individual is different, and there is no one size fits all plan for your insurance. These questions are just the starting point when you meet with your financial planner to discuss insurance. As always, the better your financial planner knows you and the earlier you start the discussion, the better you will be set for enjoying your golden years.
Medical and dental insurance
This is the most important type of insurance to consider once you retire.
Most Canadians haven’t had to worry about extended medical and dental coverage during their working years as many employers provide at least some level of coverage to their employees, but that typically ends with retirement. While BC Medical Services Plan (MSP) covers some expenses and basic health care, there are many items that aren’t covered. These include prescriptions, eye exams, eyeglasses, hearing aids, dental and paramedical services (chiropractor, massage, physiotherapy, counselling, etc.) Click here to see the full list of items not covered.
Reviewing your expenses related to health care with your financial planner will show you any gaps in your coverage and help you create a plan.
Things to consider about your medical coverage when retiring:
- Do you have an option to get coverage through your work plan?
- Do you have health concerns that need specific coverage?
There are three common strategies that our clients take when it comes to health and dental insurance. Consider which one may be the right fit for you and chat with your financial planner to make the best plan.
- Self-Insure — this is for people who feel like they are in good health and would rather pay directly for any medical or dental needs. They save a set amount of money per month to cover any costs that may arise. This strategy carries risk with it, but people who choose this option usually opt to go without insurance.
- Full Coverage — this is for people who want peace of mind. You’d rather know that you have full coverage for health and dental, just like in your working years.
- Medical Only — this option protects the health side of the equation, as it has a much larger risk of unknowns when it comes to unexpected costs. Dental is more predictable and can be paid from your savings.
This type of insurance is more straightforward and easier to make choices about. Once you reach retirement, you will most likely no longer require life insurance.
Life insurance is meant to protect your family from the loss of income and debts if something were to happen to you. Once you retire, you no longer have an income to protect. If you are self-sufficient in retirement with your income and do not have any debts, then you may no longer need your life insurance. This can also help decrease your retirement expenses.
However, if you retire with debt or have people who are still dependent on you, keeping life insurance after retiring may be a good idea. Some other reasons to consider life insurance in retirement is to cover taxes if passing on a specific asset (i.e.: family cabin), philanthropic purposes, or business purposes to name a few. Chat with a financial planner to determine what would best match your lifestyle.
An additional and important type of insurance to consider after retirement is travel insurance. You’ll typically no longer be covered after leaving the workforce, so take a look at what kind of coverage you’ll need and for how long.
Travel insurance is typically purchased per trip or annually with multi-trip coverage. Before making a decision, consider several factors:
- How often do you plan to travel?
- What plan would be best suited to your lifestyle and plans?
- Do you take day trips to the US?
- You’ll also want to consider your health conditions as you age and take that into account.
Travelling is a wonderful part of retirement, so plan ahead to make sure the unexpected doesn’t put a damper on your well-earned vacation.
Ensuring your insurance needs are met
This is just the tip of the proverbial iceberg that represents insurance. Every family and individual have different needs. It’s a great idea to discuss insurance with your financial planner well ahead of retirement to make sure you’re insured from day one, and won’t have to worry about anything sudden.
If you’re unsure of your coverage the best thing to do is meet with your team and review your current finances so that you can figure out the best coverage to give you peace of mind. It might also be worth taking a look at some other retirement mistakes to make sure you’re setting yourself up for success. It’s time to enjoy your retirement.