Insurance is one of those topics that’s easy to set and forget but the closer you get to retirement, the more important it becomes to ask whether what you have still makes sense. Getting this right could save you thousands of dollars a year and spare your family some significant complications down the track.

Why do I need to review my insurance?

Personal insurance – such as life insurance, total and permanent disability (TPD), trauma and income protection – is designed to protect you and your family against financial hardship if something goes wrong while you’re working. But everything changes as you transition to retirement.

As you progress towards retirement, your need for insurance should reduce at an accelerating rate. This is because your financial assets should be increasing, while your future living expenses will decline as we all have one less year of life expectancy each year. Most insurance policies have indexation built into them, meaning the sums insured are typically rising at a time when people actually need less cover. Insurance isn’t supposed to put you in a better financial position; it’s there to make sure your family is looked after if the worst happens.

When should I start making changes?

The short answer is earlier than most people think, with the exact time dependent on a person’s individual circumstances. We find premiums typically start to increase at an accelerating rate in your 50s because the likelihood of a claim rises.

When you’re in your mid-to-late 30s, debts are often at their highest, children are young, and household income may be reduced if one partner is working less so there is a real need for insurance. But as the years pass, the situation changes: debts reduce, children move towards financial independence and superannuation balances grow. Personal insurance needs often and naturally diminish over time and the cover should reflect that.

Should I reduce or cancel my insurance?

This is where personal comfort levels matter enormously. Ten people with identical financial positions can walk through the door and need 10 different recommendations, because they all feel differently about risk. There’s no universal right answer.

That said, the approach that tends to work best is a gradual reduction in the lead-up to retirement rather than outright cancellation. Chipping away at cover by, say, 10 per cent every year or two may keep premiums manageable without leaving people feeling exposed. Some retirees choose to hold on to a level of cover because they’re simply not comfortable letting it go yet and that’s a legitimate choice, too.

How do I talk about this with my family?

These conversations aren’t easy. Sitting down to talk through what would happen financially if a partner passed away – such as how much would be left, whether the mortgage would be covered and whether the surviving spouse would need to keep working – brings up emotions that most people would rather avoid.

A qualified financial adviser can help you walk through the numbers together and ask the questions that feel too hard to raise at the kitchen table. It’s a hard topic but one we shouldn’t ignore.

Where can I find out more?

A qualified financial adviser can help you walk through the numbers together and ask the questions that feel too hard to raise at the kitchen table. It’s a hard topic but one we shouldn’t ignore.

If you’re unsure whether your current level of cover still makes sense, it’s a reasonable question to raise at your next review with your Financial Adviser.

Mark Grasso is a Partner, Financial Adviser and the Operations Manager at Oxlade Financial. Mark is a qualified Certified Financial Planner® and holds a Master of Financial Planning and Bachelor of Business (Financial Management).
 
Any information in this article is general in nature and does not consider any of your personal objectives, financial situation and needs. It is as intended, to be of a general nature only and NOT a recommendation to you. You should consider whether the information is appropriate to your needs, and where appropriate, seek personal advice from a registered financial adviser.