Transition from Disability Income to LTC Insurance
There’s no doubt that the amount of insurance we need throughout our lives will change as circumstances evolve and wealth increases. I know this firsthand as a father who just added a teenage driver to my automobile policy! At some point, the types of insurance we require also change. One example is when we transition from our working years into retirement.
In our working years, we’re more likely to suffer from an illness or injury than to die prematurely, which is why the premiums on disability income insurance tend to be higher than those on a term life insurance policy. But what about when we retire?
When earned income stops
You wouldn’t continue to pay auto insurance on a car you’ve sold, so why would you pay disability income insurance premiums after you retire? In short, you wouldn’t. When we retire, we can assume that our earned income from work has gone away and we’re living on other income sources, such as pensions, savings and investments.
Let’s take it a step further. What if I am financially independent but continue to work out of choice rather than necessity? Again, I would argue that the need for disability income insurance has gone away. While you might qualify for coverage based on your age and income, you’d be wasting money on premiums if you’re already financially independent.
Protecting against the costs of disability in retirement
As you transition into retirement, your insurance needs will likely begin to shift from protecting earned income to protecting against the cost of an illness or injury that wouldn’t otherwise be covered by health insurance or Medicare. These are commonly referred to as long-term care (LTC) expenses, and they can present a genuine risk to retired Americans.
LTC insurance is a tool that may help you deal with the aforementioned risk. This type of policy can provide a solid source of funds to help if these expenses ever arise. There are traditional policies with a pay-as-you-go approach and also single-premium “hybrid” policies that may be linked to your life insurance benefits.
Much like disability income and life insurance, LTC insurance requires medical underwriting, so the younger and healthier you are when you apply, the easier it is to qualify and the lower the costs will likely be. In other words, it’s something to start thinking about when you’re still in your 60s, not when the need has already arisen.
Final tips
If you retire from an employer, your group disability and life insurance coverage usually ends. If you are 65 or younger and financially independent, you may also want to consider surrendering any individual disability income insurance policy you own. The idea is to proactively review the coverage you have versus what you actually need. The insurance carrier will continue to collect premiums unless notified that you no longer need the coverage in question.
With LTC insurance, some policy holders have faced steep premium increases. If this happens to you, don’t automatically cancel a policy that you’ve paid into for years. A better approach is to evaluate what you have and see if you can modify the coverage in a way that mitigates the premium increase while maintaining important benefits.
Insurance needs change throughout life, especially as we transition into retirement. An unbiased review of your coverage is vital to make sure your risks are covered and you’re not paying for something you no longer need. Ask your Corient Wealth Advisor to help evaluate your situation and make the right decisions for your particular circumstances.
Other topics in this series:
ABOUT THE AUTHOR
James Ciprich, CFP®, MBA
Jim is a Partner, Wealth Advisor and Investments Leader in our Morristown, NJ, office. Serving a broad range of clients, he has a particular focus on retirees considering care and housing options. Jim founded legacy firm RegentAtlantic’s Senior Solutions practice specialty. He is often asked to speak at retirement communities and client events and is frequently quoted in the media. Jim also serves on an advisory council to the MIT AgeLab. He holds the CERTIFIED FINANCIAL PLANNER™ certification and has an MBA and a BA in Economics from Rutgers University. He served as an adjunct professor at Fairleigh Dickinson University in the CFP® program. Jim is a past president of his local estate planning council, and he has also served as a trustee for Morristown United Methodist Church. In recent summers, he has volunteered with Appalachia Service Project. In a prior career, Jim worked in the music industry, where he was awarded multiple RIAA-certified gold and platinum albums.
CONTENT DISCLOSURE
This information is for educational purposes and is not intended to provide, and should not be relied upon for, accounting, legal, tax, insurance, or investment advice. This does not constitute an offer to provide any services, nor a solicitation to purchase securities. The contents are not intended to be advice tailored to any particular person or situation. We believe the information provided is accurate and reliable, but do not warrant it as to completeness or accuracy. This information may include opinions or forecasts, including investment strategies and economic and market conditions; however, there is no guarantee that such opinions or forecasts will prove to be correct, and they also may change without notice. We encourage you to speak with a qualified professional regarding your scenario and the then-current applicable laws and rules.
Advisory services are offered through Corient Private Wealth LLC and its affiliates, each being a registered investment adviser (“RIA”) regulated by the U.S. Securities and Exchange Commission (“SEC”). The advisory services are only offered in jurisdictions where the RIA is appropriately registered. The use of the term “registered” does not imply any particular level of skill or training and does not imply any approval by the SEC. For a complete discussion of the scope of advisory services offered, fees, and other disclosures, please review the RIA’s Disclosure Brochure (Form ADV Part 2A) and Form CRS, available upon request from the RIA and online at https://adviserinfo.sec.gov/. We also encourage you to review the RIA’s Privacy Policy and Code of Ethics, which are available upon request.
Our clients must, in writing, advise us of personal, financial, or investment objective changes and any restrictions desired on our services so that we may re-evaluate any previous recommendations and adjust our advisory services as needed. For current clients, please advise us immediately if you are not receiving monthly account statements from your custodian. We encourage you to compare your custodial statements to any information we provide to you.