Insurance and Retirement Planning: What you need to know

Insurance and Retirement Planning: What you need to know

Do you have questions about the types of insurance you need at retirement? Let’s take a look.

Happy mature couple having fun, practicing yoga together at home

People are retiring for longer now, so careful planning is in order. Of course, it’s important to be mentally prepared, but you also have to be healthy to be able to:

  • Make the most of every moment.
  • Play the sports you love.
  • Do the hobbies you enjoy.

And if you want to get through your bucket list, then you’ll need financial means.

This is where insurance factors in solid life and retirement planning. It will help you cope with the unexpected surprises that might undermine your finances.

1. Health Insurance

Taking out health insurance is good for your health, peace of mind and financial security. An emergency visit to the dentist could force you to dip into your savings! A bike accident could too.

The same applies if a health condition requires you to take expensive prescription drugs, you get sick while travelling or if a work-related burnout puts you out of commission for several months.

Many insurers offer insurance especially for those nearing retirement or changing jobs.

2. Disability or Critical Illness Insurance

To avoid having to empty your savings account when the unexpected happens and you’re unable to work for several months or years, or if you must close your business, consider taking out critical illness and/or disability insurance.

This type of insurance covers:

  • The cost of prescription drugs and treatments that the public option does not.
  • The cost of going to and from medical appointments (a plus for those who live far from the hospital and who may have to pay for somewhere to sleep, meals and other related expenses).
  • Home care services.
  • Residential aid services.
  • Childcare services.

Critical illness insurance pays out a tax-free lump sum that you can use as you see fit.

That way, you won’t have to take money out of your savings and your spouse will be able to cover household expenses. When a two-income budget becomes a one-income budget because you or your spouse falls ill, it may not be enough.

3. Term Life Insurance

Term life insurance, as its name suggests, has an expiry date, specifically the date on which you and the insurer agree it expires.

Since this insurance doesn’t cover you until death, it costs less than whole life insurance.

If you die prematurely, your beneficiaries will receive a tax-free lump sum that they can use to pay for expenses, like funeral or other related expenses, or even tuition fees.

If you take out or already have this insurance, be sure to know what to expect when it ends.

You may be able to convert your term life to whole life under certain conditions. Talk to an advisor.

4. Whole Life Insurance

Although term life insurance is a cost-effective solution for some, you will not be able to take it out after a certain age.

That means that your loved ones won’t receive any money upon your death.

It is therefore a good idea to take out whole life insurance and to do so when you are young and healthy so you can get a sufficient amount upon death.

However, it may be difficult to predict how much funeral expenses will be in 30, 40 or 50 years!

Do you own a second home? Upon death, there will be a deemed disposition of all your assets (this includes vacation properties) and the presumed capital gains will be taxed that year. Make sure your insurance policy covers this amount.

Whole life insurance is one way of making sure your loved ones have enough money to pay for expenses like this.

Finally, this type of insurance also has a surrender value that is paid to the policyholder upon voluntary termination of the insurance contract.

5. Group Insurance

Some insurers let plan members maintain some of their group coverages at retirement. Ask about the coverage your insurance company can offer you.

Since everyone’s situation is different, be sure to consult a professional advisor licensed by the Autorité des marchés financiers (AMF).