Insurance is crucial in retirement planning. It offers a financial safety net for loved ones in unforeseen circumstances. As one of the biggest financial decisions in one’s life, it’s essential to be fully aware of it to avoid costly mistakes.
However, older adults often find navigating insurance products and processing them tricky. As a result, they often make mistakes that could lead to inadequate or overly expensive coverage.
In this article, we’ll delve into the most common insurance mistakes many older adults make and how to avoid them to ensure financial security in their later years.
Moving Without Updating the Insurer
As older adults age, their skin’s nerve endings decrease, causing them to become more prone to physical injuries. That’s why they usually move to a much more comfortable, safer, and tailored-suit place for them.
The problem is that they often forget to update their insurance providers when they move. The rule of thumb is every residential property should have an individual homeowners insurance policy. This is because your old and new houses are two different properties with different risks.
In other words, you can’t have your old policy cover a new home. You should purchase another one for it. Otherwise, leaving it uninsured will likely cost you thousands, if not hundreds of thousands, to fix and rebuild it.
Fortunately, health plans like Medicare stay with you when you move. Still, the steps you should take depend on your plan type. For example, Medicare Part D and Advantage plans have specific provider networks based on an area, so you’ll need to find a new plan in the place you’re moving to.
If you’re unsure how to change address with Medicare, the process area is fairly easy for those with Original Medicare. Go to your “My Social Security” account online and update your correct address. It’s available 24/7 and takes effect immediately. If you’re non-techy, visiting the nearest Social Security office is recommended.
Not Updating Insurance Coverage
A recent report by the Washington Post showed that many people in their 60s keep paying for their life insurance even when they might not need it anymore. Financial advisors said it’s only necessary if your dependents rely on your income. However, if they’re already grown up and can earn money, older adults should stop paying for it, especially since it gets more expensive as one ages.
The same goes for couples who are about to retire. They might be better off saving money instead of spending it on insurance, especially if they’ve already paid off the mortgage and their income from pensions, savings, and Social Security is enough to cover their living expenses.
When it comes to Medicare, many older adults also stick with the same plan without reconsidering. However, this could be a costly mistake. During the annual open enrollment period, which ends on December 7, beneficiaries should review their prescription coverage and Medicare Advantage plans offered by private insurance companies.
Changing plans during this time often leads to cost savings. For example, another report by the Kaiser Family Foundation found that nearly half of those who switched prescription plans between 2006 and 2010 saved more than 5% on out-of-pocket drug costs, including deductibles and co-payments for prescriptions and doctor visits.
Not Buying Long-term Care Insurance While It’s Affordable
Many older adults are often taken aback to discover that Medicare doesn’t cover long-term care costs. That mistake often leaves them struggling to cover assisted living costs or home health care in their 70s and 80s. For example, in the US, a semi-private room in a nursing home without insurance costs an average of $260 per day or $7,908 monthly!
That’s why it’s very important to be fully aware of what your insurance covers. Investing in long-term care insurance is equally necessary since nobody will stay young. If it’s not covered in your current health plan, don’t hesitate to invest in it since it’s all for you in the future. To save costs, invest early in it. The younger you are, the cheaper it is.
If you’re already at an older age, don’t lose hope. There are still other saving ways you can take advantage of. For example, if you’re a veteran, contact the nearest Veterans Affairs (VA) office. The VA provides long-term care assistance, including 24/7 medical care and nursing, for sick or disabled veterans.
Tapping into your savings or investments is also another option. If you have a retirement plan like a traditional one or a Roth IRA, you withdraw funds from it without extra tax penalties as long as you’re 59½. 401k accounts might have some other rules, but you can usually take out money at that age. Use the funds then to purchase long-term care insurance while you’re still healthy or reinvest to have more funds to pay for long-term care in the future.
Purchasing Insurance Products At Banks
Never make investment decisions at banks. These financial institutions often sell insurance products through bancassurance tie-ups with insurance companies. This is a common “mis-selling” source, which is costlier than other insurance products. Older adults are common targets in such situations since they’re flush with post-retirement funds, seeking investment opportunities, and are less knowledgeable about investing avenues.
Note that many banks don’t provide written information. They’ll ask you to sign some papers for the insurance, saying it’s a good investment with high returns. However, other banks send the actual policy documents later, usually after the free-look period when you can’t easily change things. If there’s a problem, the bank then disclaims responsibility, claiming that your signature is on the papers and there’s no proof of mis-selling.
Getting Under/Over Insured
When looking for life insurance, you probably have specific things you want the policy to take care of. It might be for end-of-life expenses like a funeral to help clear debts or pay off a mortgage after you’re gone. Whatever your goal, choosing the right coverage amount that truly meets your needs is crucial.
Having too little coverage could leave you with a policy that doesn’t help much, while having too much might mean paying for more than necessary. Determine the exact coverage amount that suits your goals and only apply for and pay for that amount.
Getting insured secures the financial well-being of older adults during their retirement years. Nevertheless, it’s crucial to thoroughly research, understand policies, and match coverage to specific needs to avoid making costly insurance mistakes. If confused, it’s always advised to seek professional help from financial advisors to make more informed and cost-saving decisions.