Baby Boomer beware! Your insurance needs are changing. What you need today is not what you needed 20 years ago. Now’s a good time to take a look at your needs so you’re prepared for future obstacles thrown your way.
Shortly after getting married you likely just had auto insurance. When you purchased your home you bought homeowner’s insurance. You used life insurance to assure the financial security of your young and growing family. Your dependence on each of these policies needs adjustment.
Auto insurance became mandatory in 1983 with minimum limits of $25,000 per person and $50,000 for all those injured in an accident. Medical costs have dramatically risen since then prompting steep increases in litigation costs after an accident. Do you have auto insurance now that simply complies with the law or is it to protect yourself for that unexpected accident? The norm today is split evenly between having liability limits of $100,000 per person injured and $300,000 for all those injured (written 100/300) and $250,000/$500,000. If you cause an accident, and do not have enough insurance to cover the loss, YOU are responsible for the balance of any remaining settlement costs. The insurance company will pay their policy limits, close their file, leaving you to hire your own attorney, and pay the balance of litigation expenses from all of your current and future assets. A child running into the street could suddenly wipe out your retirement plans.
How long has your home been insured by your current company? A common issue for many insureds is the proper valuation of your home. What changes have been made to your home? If under-valued after a loss, there may be insufficient funds to pay all of your loss. Some policies annually increase the value of your home annually. Being over insured means you’ve been buying more insurance than you need. Simply requesting the company, or your agent, to prepare an updated valuation of your home can identify a substantial and long overdue adjustment.
Do you have an Umbrella policy? Should you have one? As the name implies, an umbrella policy adds liability protection, in $1 million increments, over your regular liability limits for auto, home, boat, or other policies you may have. If you lose control of your car on an icy road, colliding with another car with injuries resulting, the limits on your auto policy would be supplemented with an added $1million protection if you had an umbrella policy. Not having an umbrella policy could drastically impact your retirement assets after a truly unexpected incident.
Ideally in your younger years, you received life insurance through your employer or purchased a personal life insurance policy. If you added life insurance, you did it to make sure your family had sufficient coverage in the event of your death to cover the day to day expenses of raising a family…alone. Jump forward 30 years; your kids are finishing college and you’re dreaming of how you’re going to $pend your retirement. For some this is a time to reduce your level of life insurance. For others, life insurance may serve as an important tool in retirement planning.
You took out the life insurance policy for a variety of reasons. Do you remember when you took it out? At what age, or in what year was that policy to end? How many more years is it valid for? Policies have a specific number of years where coverage applies known as the policy term. Commonly I find “baby boomers” are paying for a high priced policy with a death benefit that is no longer needed. If you have one, consider “converting” it to a lower cost, specific term policy. The policy change could reduce your annual cost without subjecting you to re-underwriting for your current health and age factors. But, I caution you, Do Not cancel it without fully understanding what you are giving up.
There are situations where you may want to extend the term of a life policy; most commonly to cover outstanding loans. Your current health conditions may bar eligibility for a new policy but modifying an existing policy likely is allowed and may perfectly suit your needs. Applying to extend a policy while it is still in effect is usually cheaper than taking out a new policy after your current one has expired. Another reason to continue or add a life insurance policy has to do with retirement planning.
If you or your spouse’s employer sponsored retirement program ofters you the opportunity to elect whether to receive full retirement benefits as a single benefactor, or elect to receive them with a spousal benefit (which means your spouse continues to receive benefits after your passing). But, including the spousal benefit results in a reduced monthly benefit. To get around the reduced benefit level, explore retaining that existing life insurance policy, or taking out a new term policy covering the spouse with the retirement benefit. It is often cost beneficial to use a life insurance policy to cover the shortfall between those retirement benefit levels.
There’s one more piece of insurance I need to draw your attention to; Long Term Care Insurance. People are living longer in nursing and assisted care facilities and wiping out any savings they may have had. Today it can cost $8,000-10,000 a month to be in an assisted living facility. Think how long your assets will support you living there? Long Term Care insurance helps you afford the care when you need it. But, there are only a few companies still offering it and those that are, are closely evaluating who they will provide the coverage for. Taking out such a policy early before health consitions prevent a company from writing such a policy for you, is still going to be expensive but cheaper than dealing with the care costs later as you age.
Your life is changing and so are your insurance needs. Don’t assume you have no more insurance needs.