Retiring from work does not relieve you of your financial responsibilities. Obtaining the right kind of insurance coverage can help you meet these needs. Here are some recommendations to considerwhen reviewing your insurance policies before you retire:
• Funding health insurance. You become eligible for Medicare when you reach 65, but Medicare does not cover all health-care expenses. For broader coverage, you need to purchase a Medicare supplement – Medigap – policy.
Each standard plan provides a different set of benefits and fills different Medicare coverage "gaps." The costs for these policies vary depending on the benefits.
Since Medicare does not become effective until you reach 65, you will need to pay for your own health insurance if you're thinking about retiring early. Your former employer may provide medical benefits, especially if you retire as part of an early package.
The coverage may not be as comprehensive, but it's likely to be the least expensive option unless you are eligible to be covered under someone else's plan.
Another alternative is to extend your old employer's group coverage through COBRA.
COBRA is the federal law that entitles you to continued coverage in a former employer's group health plan even after you leave the job. The coverage will cost more than when you were working since you'll be paying the full monthly premium, in addition to a 2 percent administration fee.
In most cases, COBRA coverage is available for up to 18 months after employment ends.
Should you require coverage beyond 18 months, you may qualify for a group policy, perhaps through your alumni association or a trade or professional organization.
• Keep homeowners and auto insurance current. The need for homeowners insurance doesn't change when you retire. In fact, for retirees who travel or plan to be away a lot, it could be more important than ever.
If cost is a factor, you may be able to save money by raising the deductible.
And will you be driving fewer miles in retirement?
Check with your insurer to see if you qualify for a rate reduction. You may qualify for a discount if you take a Pennsylvania state-approved driver-safety refresher course.
• A need for life insurance may lessen. As you approach retirement, your life insurance needs may be less important than when you were working full-time.
If your children are grown and your mortgage paid off – and if you have sufficient cash resources to cover all final expenses and burial – you might consider reducing or even eliminating your term life insurance.
Some retirees do maintain coverage to meet the family's liquidity requirements and avoid having to sell securities at a loss to generate cash for burial or estate taxes.
• Long-term-care insurance protects assets. When you were employed, you probably carried disability insurance to protect your income in the event you were unable to work because of illness or injury. When you retire, you have no paycheck to protect.
But becoming disabled could still pose a significant drain on your assets. Long-term-care insurance can help by managing the cost of lengthy illnesses without jeopardizing your nest egg.
Keep in mind, however, that the older you are, the more expensive the premiums become – and the greater the risk that you won't qualify.
This column appears in cooperation with the Pennsylvania Institute of Certified Public Accountants.