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Will you need life and health insurance in retirement?

Updated: Jul 12

June 23, 2021 • Insurance Planning

During your working years, many types of insurance are usually considered to be necessary. For example, life insurance protects your family’s financial security and disability insurance protects your income. In retirement,

life and health insurance is to a large extent optional, but may still be regarded as essential to many retirees.


Disability and critical illness insurance


You won’t be getting disability insurance once you’ve stopped working, as this coverage replaces your income from employment or self-employment. Also, disability insurance typically offers coverage up to age 65.


Critical illness insurance policies are available that provide protection up to age 75 or for your lifetime, but you need to purchase such a policy by age 65 or earlier. Premiums are more expensive for coverage during retirement because there’s increased likelihood of suffering a heart attack or stroke, or being diagnosed with cancer at older ages. With this coverage, retirees who make a claim are able to preserve retirement savings by using the insurance benefit to cover expenses associated with the critical illness. Expenses could include out-of-country medical procedures, home modifications or nursing care.


Long-term care insurance


Generally, people purchase long-term care insurance for one of two reasons. They want to ensure they’ll have the funds to cover health care costs if they need long-term care. Or, if they require years of care at a later age, they want to preserve assets they wish to leave to heirs.


Long-term care insurance benefits can be used to cover the costs of home care or a long-term care residence. Benefits are payable if you can no longer properly care for yourself and need help with the activities of daily living, either because of a chronic health condition or deteriorating cognitive abilities.


You can apply for long-term care insurance well into retirement, but if you purchase a policy at a younger age you’ll benefit from more economical premiums. Also, if you wait too long, you risk developing a health condition that could make you uninsurable.


Another option is to self-insure. Set aside a sum of liquid investments you can access during retirement to cover any unexpected health care needs.


Life insurance


In retirement, you can use permanent life insurance to meet a variety of estate planning needs. Life insurance proceeds can cover taxes payable on estate assets, preserving the value of your estate for heirs. You can balance inheritances among beneficiaries, when one child might receive vacation property or the family business and you name another child as life insurance beneficiary. If you have an adult child with a disability or special needs, life insurance can fund a trust established for their care. As a charitable donation, you can potentially leave a larger gift using life insurance and benefit from flexibility in how you use the tax deduction.


You can purchase life insurance for estate planning before or during retirement. If your estate planning needs change over time, you can apply an existing policy to a new need simply by changing the beneficiary as required.

About private health insurance


In retirement, Canadians can purchase a private health insurance plan that’s similar to an employer’s group benefits plan, covering costs such as dental care, vision care and many other health care services. Here are some of the approaches and thoughts that different retirees go through in deciding whether to purchase an extended health insurance plan:

  • A retiree understands that over time some people will receive a greater amount in claims than they spent on premiums, while others will pay more in premiums than they receive in claims, and they’re fine with that situation.

  • Some retirees prefer to cover health expenses on their own, satisfied that all payments cover necessary costs, as opposed to paying premiums that may or may not be the economical choice.

  • Some retirees view the health insurance purchase as a win-win: if claims are greater than premiums, they come out ahead financially; if they have few claims, they’re happy to be enjoying good health.

  • Many retirees prefer to budget for steady monthly insurance premiums than face the prospect of larger, unpredictable health costs at any time.

  • A retiree might compare the cost of premiums to actual health and dental expenses over a period of one or two years or longer, then use those findings to decide on future coverage.



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