Cutting Expenses in Retirement: 7 Types of Insurance You No Longer Need
Written by
Angela Mae
Edited by
Gary Dudak
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If you’re living on a fixed income in retirement, now’s a good time to look over your monthly expenses and see where you can cut back. In particular, see if you can get rid of some of your current insurance policies.
Doing this will free up some extra cash flow and stretch your retirement budget further. Here are the main types of insurance you might not need once you retire and why.
Term Life Insurance
Life insurance protects your family in the event that you pass away early. With a good policy, you can rest easy knowing your loved ones will be taken care of when you’re gone.
When you get life insurance, you’ll typically need to pay a monthly premium to the insurer. After you pass away, your beneficiaries — usually your next of kin — will receive a lump sum payment as per the terms of your policy.
While life insurance is generally good to have, you might not need to keep paying for it once you retire.
“In most settings, life insurance is in place to cover the loss of income if the policy owner dies, so that their dependents have enough money to maintain their lifestyle, pay off debts, and meet other financial goals,” said Jake Skelhorn, CFP, partner and wealth advisor at Spark Wealth Advisors, LLC. “After you retire, there may not be a need for as much or any life insurance, because ideally you will have enough assets and other income sources (Social Security, pension) that will transfer directly to your spouse or other heirs.”
Carla Adams, founder and financial advisor at Ametrine Wealth, added, “If you have enough money to retire, then you and your dependents don’t need these kinds of insurance protections in place. Anyone who depends on your assets will inherit (or at least should be set up to inherit) your assets upon your death.”
Permanent Life Insurance
On the topic of life insurance, some agents will try to convince you to purchase permanent life insurance — like whole life or universal life. If you’re retiring, however, this is unlikely to be worth the money.
“These permanent life insurance products are very complex and insurance agents are well-trained to make them sound really great, but they are expensive and, I believe, don’t provide the value that you would get if you simply took the money you would be paying in annual premiums and invest it in a diversified portfolio,” said Adams. “Very few people, in my opinion, really need or benefit from permanent life insurance policies.”
There are exceptions, however. The main types of people who might benefit from such policies are those with large taxable estates who can use the policy to move assets out of their estate, and those with special needs children who want to ensure they’re leaving enough behind for their child’s care.
Disability Insurance
Disability insurance is another type of insurance you might not need when you retire. This is due to how most policies are designed.
“Disability insurance is in place while working to ensure that you have at least some income in the event you become disabled and cannot work,” said Skelhorn. “When you retire, disability insurance is simply not needed as you aren’t working anyway.”
Disability insurance also only pays out if the insured is working at the time they become disabled. So, if you still have disability insurance and have retired, reconsider whether you truly need it. If the answer’s no, cancel it.
Long-Term Care Insurance
Do you have long-term care insurance? If so, reconsider if you still need it.
“Long-term care insurance is another type of insurance that is often no longer needed once you retire,” said Linda Chavez, founder and CEO of Seniors Life Insurance Finder. “This type of insurance covers the costs of long-term care services such as nursing homes, assisted living facilities, or in-home care. Once you retire, you may have enough savings and assets to cover these expenses on your own.”
Of course, if you don’t have enough money to cover long-term care, you might want to keep your policy. It all depends on your needs and financial situation.
Private Health Insurance
Your health insurance needs change as you get older. At a certain point, you’ll likely qualify for Medicare, meaning any private insurance plans you currently have become unnecessary.
“If you had coverage through your employer, you will likely need to find new coverage once you retire,” said Chavez. “However, Medicare is available for those who are 65 or older and can provide comprehensive health insurance at a lower cost than private insurance.”
So, while it’s still generally wise to have some kind of insurance, you might not want to keep the same policy you’ve had — unless the cost fits into your retirement budget and needs.
Certain Types of Homeowners Insurance
Homeowners insurance is not required in every state, but it’s generally still good to have it. That being said, take a moment to consider your policy and what it covers. You might not need the exact one you have now.
Say, for example, you had private mortgage insurance (PMI) due to putting less than 20% down when buying your home. If you’re still paying it even after building enough equity in your home, speak with your lender about getting rid of it.
If you have a policy that’s specifically designed to protect your property against unique or special circumstances — like earthquakes, theft, or floods — ask yourself if you still need it. In some areas, you’re required to have certain minimum coverages. In others, you might not need what you have and can thus drop it to lower your expenses.
“Many people also have mortgage insurance to cover their mortgage payments in case they become disabled or pass away,” said Chavez. “However, once you retire and pay off your mortgage, this type of insurance is no longer necessary.”
Car Insurance
If you don’t plan to own a car in retirement, you can drop your auto insurance. And if you do have one but you don’t plan to drive it anywhere, you might be able to get a cheaper policy.
“Although car insurance is required by law in most states, the level of coverage needed can change after retirement,” said Chavez. “Once you are no longer commuting to work every day, you may be eligible for lower rates as you are driving less and therefore, have a lower risk of accidents.”
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