These days, it seems like every other TV commercial is for yet another insurance product. While consumer choice can be a good thing, not all insurance is as essential as the ads make it seem.
“There’s a lot of sales and marketing based on fear that especially targets retirees,” says Jonathan Howard, a certified financial planner in Lexington, Kentucky, as well as a former insurance salesman. “People end up buying because they’re terrified of a loss rather than to cover an actual insurance need.”
Here is insurance you may not need if you’re near or in retirement.
The premium for an employer group disability plan typically increases with age, says Greg Klingler, director of wealth management at the Government Employees’ Benefit Association in Fort Meade, Maryland. The policy also will limit the payout period until a particular age, such as 65. As this age nears, your maximum possible benefit shrinks.
This is especially true for someone who could have retired earlier but is still working. “You’re no longer dependent on your salary, so weigh the value of protecting this extra income versus the high insurance cost,” says Klingler.
Critical illness insurance
A stroke, heart attack, life-threatening cancer and an organ transplant are some of the serious health problems that critical illness insurance covers. If you experience one of these conditions, the insurer sends you a lump sum cash payment, ranging between $10,000 and $50,000, that can be spent however you want.
Despite this flexibility, Howard isn’t crazy about this type of insurance, “where unless a specific situation happens, you don’t get anything back.” He suggests reviewing your potential out-of-pocket costs for health insurance to see whether you need critical illness insurance or if you could manage the bills with savings.
Social Security insurance
A new product has emerged: Social Security insurance.
It’s a type of annuity, an insurance contract that turns part of your savings into future income.
When you add this insurance to an annuity, the insurer promises your annuity payment will increase to cover a government shortfall that results in a smaller Social Security benefit.
Howard doesn’t think this is a good return on your money.
“Retirees vote, and they predominantly live in swing states,” he says. “If the government ever reduced Social Security for people already claiming it, they’d never hear the end of it.”
Individual dental or vision policies
Travis Price, a Medicare insurance agent in Traverse City, Michigan, does not think individual dental and vision policies are worth buying in retirement.
The cost of group dental and vision coverage is heavily subsidized by the employer, Price says.
But when retirees purchase insurance in the individual marketplace, “the coverage costs can increase 10-fold for less coverage,” Price says. “Often, seniors are better off simply being a cash patient and negotiating cash costs with their provider.”
Another alternative, he says, is finding a Medicare Advantage plan that includes dental and vision coverage.