Insurance For Retirement Planning – 3 Main Types

We could have hours-long debates on the merits of insurance for retirement planning. It’s likely that your employer offers you access to varying group insurance policies for a nominal amount. What’s not likely? Your ability to transfer the insurance coverage to your new employer. What’s even more unlikely? That your responsibilities will cease to exist if you go on claim. Below are three popular types of insurance in retirement planning to consider:

Life Insurance

No scare tactics here, but knowledge is key. In most cases, having an employer policy for the amount of your outstanding liabilities will suffice. If it falls short? Consider additional coverage with a term policy (even if you leave your employer, you’re likely to find new employment that may also offer term insurance).

With minor exceptions, insurance for retirement planning is that strange thing that only gets pricier as time goes on. It may be worthwhile calculating your outstanding debts, amounts needed to replace your income at home, and any future bequests you’d like to make.

If you think your situation calls for more permanent coverage, you may consider a whole life policy or a variation thereof. There are several kinds of insurance that are categorized as whole life policies. Like term life insurance, whole life pays a benefit when you die.

But unlike term life, it builds cash value as you pay your premiums. Whole life premiums get divided up—some of the money you pay goes to your death benefit, some to insurance company operating costs and profits, and some towards your policy’s cash value.

That’s why carrying a whole life is sometimes viewed as a saving or investing strategy. Some insurance companies invest the cash value portion of your premium payments.

What’s the catch? Whole life insurance is relatively expensive. Premiums are usually several times higher than term life premiums.

Disability Insurance

Your ability to earn income is your primary (financial) asset. It’s how you put food on the table, afford vacations, and fund your future goals. It makes sense to protect it, and it’s exactly why many employers offer this coverage.

You may also find access to extended coverage for pennies on the dollar – oftentimes a wise choice to make. What can be more precarious is the likelihood of disability within your profession. Some professions have a higher incidence of claims which may spur an interest in obtaining your own policy.

Are you a highly specialized professional? Even more reason to explore purchasing your own disability policy.

Long Term Care

Controlling expenses in retirement is paramount to a successful financial plan. Unforeseen expenses can derail that – and quick! In projecting retirement expenses, we typically account for the cost of shelter, food, clothing, entertainment, and regular medical expenses.

However, having to afford in-home care or assisted living facilities will shorten the time you have to draw down your assets considerably. Based on your earnings history, you’re unlikely to qualify for public benefits.

Take a look into your family’s health history and see how feasible it is to have your own Long Term Care policy. New product developments have made this part of insurance for retirement planning a bit more palatable.

Like anything else, when it comes to insurance for retirement planning, it should be tailored to your current (and future) situation – as best as possible. While not an exact science, being proactive pays dividends and can save lots of money down the road.

While you should avoid sacrificing cash flow for the cost of the premium, there is a tradeoff between saving the money on your own (self funding) or leveraging an insurance policy.