For many seniors and retirees, the only life insurance they have in place is a funeral plan. But regardless of age, there is still a need to protect against the financial costs associated with serious medical conditions. And there are a number of ways life insurance can help.
It’s no secret the number of Australian retirees is growing rapidly. According to the Government’s fourth intergenerational report, the number of older people (65 to 84 years) is expected to double by 2050. And the number of elderly (85 and over) will more than quadruple (1).
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Naturally, such growth in the numbers of elderly retirees is likely to increase the incidence of serious illnesses, putting financial pressure on many families, and adding to the burden on the health system at large.
Things for Seniors to consider
For seniors and pre-retiree’s there are a number of things to consider when it comes to planning for life insuranceand serious illness.
- Home modification – you may need to install ramps or safety features to your home due to decreased mobility
- At home assistance – your spouse may also be elderly spurring a greater need to employ someone to help.
- Ongoing medical care – due to improvements in medical care you are more likely to survive treatment; meaning a greater need for ongoing care. For example, male cancer five-year relative survival increased from 41% in 1982-86 to 58% in 1998- 2004. For females, they increased from 53% to 64% over the same period (2).
- Nursing home care – you may need 24 hour care if any of the above is no longer a viable option.
What life insurance solutions are available to retirees?
While Australia doesn’t have a specific Long Term Care insurance product like they do in other countries, we do have life insurance solutions that can provide both lump sum funds to cover home modifications, and policies that provide monthly payments to help with the costs of living.
The three solutions we will examine include:
- TPD insurance
- Trauma insurance
- Living expenses cover
1) TPD insurance
TPD insurance has four criterions that a sickness or injury is assessed against.
At age 65, the first tier typically ceases, and cover can continue to age 99 for the other three tiers. This provides the opportunity for a retiree to continue to have lump sum cover for events such as a stroke, Alzheimers disease, or blindness due to diabetes complications.
For some retirees, $50,000 cover for death, terminal illness and non-working TPD insurance may be enough to meet the need from a cover and cost perspective.
The payment could be used for immediate expenses and can delay the need to liquidate other retirement assets immediately.
2) Trauma insurance
The other lump sum solution is trauma insurance.
The advantage of trauma insurance over TPD insurance is that while the TPD insurance requires certain levels of impairment, trauma insurance cover will pay for many of the defined events on diagnosis.
3) Living expenses cover
Another option to consider is a living expenses policy. Such a policy could be used as an alternative to, or in conjunction with lump sum trauma or TPD insurance.
The monthly payment may allow you to cover your ongoing living expenses.
Self-insurance
We know the need exists for retirees to consider the possibility of a medical crisis.
But why would a cashed-up retiree need an insurance policy? Can’t they just self-insure? Even if a retiree has considerable assets, they may be largely invested, and accessing those assets in an emergency may be difficult or expensive. There will also be many retirees whose savings are not sufficient to cover the cost of a serious medical condition.
To put these costs into perspective, an article in Money Management estimated that 24-hour care can cost between $7,000 and $10,000 a week, depending on the circumstance and the ailment or disability (3).
That kind of expense can erode even well planned cash reserves very quickly; putting the rest of a retiree’s financial plan, and their estate planning wishes, under threat. So while term life insurance may not be suitable, there are other types of personal insurance products that can offer valuable financial protection
Keep your life protected in retirement
For retirees and seniors, it’s often just the type of policies that needs to change.
The good news is that a select few of today’s life insurance policies offer the ability to convert your cover as you approach retirement. This offers continuous cover’ often without the need for medical re-assessment.
With a combination of term life, TPD, trauma and living expenses cover, you can structure a comprehensive personal insurance plan to complement your retirement plans; giving you financial security well into retirement.
Resources:
1. Australian Government (January 2010) The 2010 Intergenerational Report
2. Australian Institute of Health and Welfare (July 2008) Cancer survival and prevalence in Australia
3. Money Management magazine (15 December 2009) Healthcare costs an increasing concern in retirement planning
Source: ING 2010