From the moment you begin planning for retirement, your priorities for insurance cover will turn on their head. Once-major concerns can suddenly be set aside; aspects you could previously ignore become vital.
Without making immediate changes, you could find yourself wasting your valuable retirement funds on services you no longer need.
But what, exactly, do you need to look out for? What do you need to adjust, and what should be avoided? While everybody’s financial situation is different, there are some golden rules that can benefit any Australian looking toward retirement.
We spoke with Richard Weatherhead, Head of Insurance at AustralianSuper, about making the most of your insurance past the age of 60.
Rule #1: Consider your complete financial position
“The first thing is to consider your insurance in the overall context of your financial position,” suggests Richard.
This includes not only your superannuation and savings, but also your full range of assets, such as cars and properties – all of which, it is important to remember – are themselves a form of insurance.
“Ask yourself: ‘if something happens to me and I’m disabled, how well can my existing assets cover that?’ That will drive what priority you give to each component.”
“A lot of the trick is about looking at your overall budget – how much do you think it’s reasonable to cover all those liabilities? How would you prioritise them?”
“The insurance that you require is the balance on top – what your needs are, less what your assets are.”
“It’s a hard thing, because the reality is that for most people they add all that up, and the amount well exceeds their budget. So inevitably, it’s a case of prioritising that budget”.
Rule #2: Consider your work and retirement plans
If you’re still working (or transitioning into retirement), income protection is one of the most important forms of cover.
“Ask yourself: ‘how long am I planning to continue work?’ Because that’s really going to drive your needs for income protection. If you’re sick, who will replace your income?”
“If you’re thinking of retiring fairly soon, the need for income protection is arguably less, and will disappear once you’ve retired”.
However, the situation can get trickier if you’re finding new jobs at 60, or shifting to a part-time position.
“If you’re taking out new cover of any kind, the main thing to check is whether the insurer is covering any existing medical conditions you might have”.
“If you’re an existing member of a super fund, generally you’re on full cover, which covers all your medical conditions, whereas if you join a new employer, typically you’ll be on what they call limited cover for a while”.
This usually means you won’t be covered for any pre-existing medical condition or circumstance. In many cases, full cover doesn’t begin until you have worked full time for a specified period.
This is a particular concern if you are working part-time for health reasons. “The danger is that you might not ever move to full cover if you don’t move to full time work”.
Rule #3: Consider the actual costs
“The cost of insurance unfortunately increases quite substantially as your age increases,” says Richard. “You have to keep a close eye on that, and how it compares with the benefit you’re getting.”
Beyond retirement age, premiums can increase by as much as 20% per year. As such, it’s vital to plan ahead around these regular increases. Premiums may be within your budget today, but will they still be affordable 10 years from now?
“It’s just a case of sitting down and thinking: ‘Do I want to have private health cover forever?’ In which case, bear in mind that health costs do increase.”
Another easy-to-overlook aspect occurs when your insurance is factored into your superannuation, and simply gets deducted from your balance.
“You have to be very careful, because you don’t see the cost directly,” says Richard.
“If the insurance is in superannuation, you need to understand the impact of those costs on your account balance. Any money that goes to an insurance premium is money not going toward your retirement.”
It’s also important to be wary of doubling up or over-insuring.
“You need to be quite careful,” says Richard. “A lot of people tend to take out funeral insurance with the best of motives, but people should consider that funeral insurance is essentially death cover, which is the same as cover you could get through superannuation.”
One common example of over-insuring comes from considering your next of kin. “If you have grown up children who are now financially independent, consider that you no longer need to provide for them beyond your own lifespan,” says Richard.
“It doesn’t mean you don’t need any cover at all, just that you need less.”
Finding an ideal balance
How can we accomplish this difficult balancing act between overspending and leaving ourselves uncovered? “It can be quite a challenging decision to make,” says Richard, “as both overshooting and undershooting can be a problem from different perspectives.”
If you find yourself in doubt, it may be worth seeking further assistance – whether through a simple online tool or in-person from a qualified professional.
Click here to learn about AustralianSuper’s helpful range of financial advice options to get the clarity you need.