Midlife Insurance Audit
We need different types of insurance policies for different phases of our lives, for different amounts, for different reasons. If you haven’t taken stock of your current coverages by the time you hit middle age, it may be time for a midlife audit. If it’s been even longer, you’re probably overdue.
The following are some guidelines to help determine what coverage you might need heading toward and while in retirement.1
- Health Insurance — If still working, it’s important to make sure your workplace or individual health insurance policy has a wide network of physicians and specialists. If you are eligible for Medicare, research your options before choosing your policy. You can go to gov for more information.
- One way to help reduce the cost of routine care is to utilize telemedicine services, now covered by many health insurance A telemed “visit” can cost a fraction of the price, and you don’t even have to leave home.
- Life Insurance – One way to help determine how much life insurance you may need is by your financial situation, not your age. Couples with limited retirement funding sources might want to consider purchasing a policy to help with expenses after the first spouse dies.
- Because term life insurance premiums grow in cost as we get older, an option is to switch to the fixed premiums of a whole life policy.
- Home Insurance — If you make significant improvements to your home — including features to help you “age in place” — be sure to contact your insurer to upgrade your coverage for the full value of your home.
- Note that in recent years new areas of the country have experienced flooding due to storms, so explore purchasing flood insurance because most homeowner policies do not include it.
- Auto Insurance — According to Consumer Reports, if your combined annual premium for comprehensive and collision coverage is 10 percent or more than the book value of your car, it may be worth considering dropping that extra coverage. That’s because the insurer will not pay out more than the car’s cash value, regardless of the amount of the claim.
Insurance can play an important role in your retirement planning. We’ll be happy to help you assess your life insurance needs for retirement; just give us a call.
1 Jack Fehr. Next Avenue. The Macomb Daily. April 24, 2017. “How to give yourself a mid-life insurance audit.” http://www.macombdaily.com/article/MD/20170424/NEWS/170429785. Accessed Nov. 27, 2017.
Money Saving Tips
Insurance or Investments — or Both: Strategies for Retirement Income
According to Wade Pfau, Ph.D., CFA, professor of retirement income at The American College of Financial Services, a higher education institute for financial planners, there are two fundamental philosophies for retirement income planning: probability-based and safety-first. Probability refers to an investment portfolio while safety refers to an insurance strategy.1
The investment approach involves a higher degree of risk, including the potential loss of principal, in exchange for a greater opportunity for growth. While traditionally we might associate tolerance for risk with a certain investor personality or disposition, when it comes to retirement these days, there are other potential risks to consider. We no longer gauge risk simply in terms of high- or low-risk assets. It is also defined as the risk of living a long life and subsequently outliving one’s savings.2
People who favor the investment route may be looking for a long-term return on assets in order to provide income throughout a 20- to 30-year retirement. While stocks can be volatile, they have historically outperformed bonds over a long timeframe — which is more typical of today’s retirement duration.3
Investment Strategy Advantages:4
- Potential to earn higher market returns to support a higher income rate or longer income stream
- Growth potential may help protect against inflation
- Able to access portfolio funds if needed
Investment Strategy Disadvantages:5
- Longevity risk — may not produce high enough returns to support a long retirement
- Sequence-of-returns risk — market decline early in retirement could negatively impact retirement income
- Owner’s ability to manage an investment portfolio could decline with age
On the other hand, a retirement-income insurance product, such as an annuity, may offer a lower stream of income, but it is guaranteed.* While a guaranteed income stream may not offer the growth potential that the investment market can, knowing how much we’ll receive each month can help provide confidence in retirement and help reduce the stress that our funds might run out.6
Insurance Strategy Advantages:7
- Guaranteed income stream
- Option to receive income for life (and even the surviving spouse’s life)
- Reliability can help alleviate financial stress
- Automatic payouts do not require management at older ages
- Option for a death benefit for named beneficiaries
Insurance Strategy Disadvantages:8
- May have lower, fixed income payouts
- Potentially miss the opportunity for high market gains
- Options for liquidity are limited
- Annuities may be subject to fees, surrender charges and holding periods which vary by company.
It’s important to remember that these two strategies are not mutually exclusive. Today’s retirees can combine them as a strategy to help provide income over a longer-than usual retirement. In recent years, many financial professionals have come out in favor of combining insurance and investment strategies as part of a well-thought out retirement plan.9
We can discuss these strategies with you and help you create a plan for your retirement income. Give us a call today!
*Guarantees are backed by the financial strength and claims-paying ability of the issuing insurer.
1 Wade Pfau, Ph.D., CFA. Retirement Researcher. April 12, 2016. “Which Is Better for Retirement Income: Insurance or Investments?” https://retirementresearcher.com/better-retirement-income-insurance-investments/. Accessed Nov. 27, 2017.
Tips to Help Reduce Auto Insurance Premiums
Auto insurance is priced for the way the driver chooses to use it. If you’re looking to cover small repairs, such as door scratches or windshield dings, you may want to choose a lower deductible so you have less out-of-pocket responsibility before coverage kicks in. However, this strategy can trigger higher premiums.
On the other hand, if you’re willing to pick up the cost of small repairs — should they occur — it may be wiser to choose a high deductible. The higher the deductible, the lower your premiums. The key is to choose a deductible you can pay without causing serious financial strain. Unless you’re in the habit of making large claims year in and year out, paying lower premiums may be the more prudent option.