A solid retirement plan takes into consideration more than just your assets and liabilities, it should also include insurance. Health insurance is probably at the top of this list followed closely by long-term care insurance. Life insurance should also be reviewed because the need for this coverage should diminish as your assets grow. What most retirees overlook though is their Homeowners insurance.
As a retiree, your life situation is different now than it was 30 years ago. Your children are hopefully out of school and providing for themselves financially. You may be considering downsizing your home and getting rid of the “stuff” that you no longer need. This is especially true if you are planning to travel more or spend the winter months in a warmer climate. Whatever plans you have for your retirement the chances are good your insurance needs have also changed.
The best place to start is to review the basics of your policy. You need a homeowner’s policy that protects the physical structure against damage. Are you still living in a single family home or have you already downsized to a townhouse, a condo, a co-op, an apartment, or manufactured home? These different types of structures all have specific home insurance needs. The outside structure of a townhouse, condo or co-op is usually covered by the homeowners association. You’re probably responsible for covering only the interior structure yourself. In case of fire or other catastrophe, you’ll have to replace the drywall and paint, lighting fixtures, cabinets and flooring. You will want to verify that you have coverage on the part you are responsible for and not paying for coverage you don’t need.
Check your policy to see if you are insured for the actual cash value of the structure or the replacement cost. The actual cash value is the amount of insurance your insurer will pay out to repair or replace damage to your home minus depreciation. Replacement cost will pay to replace or repair your home to the same standard it was without deducting for depreciation. Insuring for actual cash value is less expensive than replacement cost. If you choose to insure with this method you will need to stay on top of the value of your home and periodically adjust the value in your policy to stay current. Otherwise you may find yourself significantly underinsured in the event of a total loss.
Review what perils are covered in your policy and pay attention to the ones that specifically are not covered. The insurance industry uses the term “peril” to describe an event that can cause a loss such as fire, windstorm, and theft. Perils such as floods and earthquakes are typically NOT included in most Homeowners coverage. Flood insurance has to be bought separately through the federal government’s National Flood Insurance Program (NFIP). Earthquakes don’t just happen in California. You will usually need a separate policy if you want to protect your property from earthquake damage.
Do you have other structures located on your property? Most policies will discuss how other structures are covered (or excluded). A detached garage where you store your antique cars could amount to a significant loss. Pay attention to this section of the policy if this situation applies to you.
Regardless of what structure you have your policy also needs to protect your personal property that is not part of the physical building. Personal property includes clothes, furniture, jewelry, electronics, artwork, etc. Most policies set a dollar limit on these items which may not be sufficient if you own valuable collectibles. These items will need to have riders on the policy to protect them and may require appraisals to establish their value.
There are three additional items in your policy that you will want to review:
- Additional Living Expenses. Where will you stay if your home is completely destroyed? Will your policy cover the cost of you living elsewhere while your home is rebuilt? Most policies will contain a clause that addresses this situation. Make sure the cost will be covered in a way that will allow you to maintain your usual standard of living.
- Medical expenses for injuries that happen to other people on your property. This may be addressed under the liability section of your policy. The coverage usually states the policy will pay the medical expenses, up to a set amount per person or incident. If someone slips and injures themselves on your sidewalk you want to verify that it is covered in your policy.
- Comprehensive Personal Liability. Most homeowner’s policies cover an event where someone suffers an injury while on your property. The insurance company will provide a defense in the event of a lawsuit. A lawsuit against a homeowner may involve several different claims, some of which may be covered by the liability insurance policy and some of which may not. You need to review the specific limitations and exclusions which can alter the provisions of coverage in your policy. A limitation is an exception to the general scope of coverage. An exclusion is a broader exception which often rules out coverage for such cases as intentional acts.
Umbrella Liability Insurance – This is not part of a Homeowners policy. It is additional coverage to supplement your homeowners and automobile policies. The insurance is added liability protection above and beyond the limits these policies provide. Additional liability insurance is often inexpensive, especially compared to the added coverage. There are many factors that can impact premium costs but a ballpark estimate for a $1 million umbrella policy is about $300 per year.
Don’t allow an uncovered loss of your home wreck your retirement plans. Make sure you have the homeowners insurance you need at this stage of your life and don’t waste money on coverage you don’t need.
- Insurance needs are likely to be very different for a retiree. Review all your insurance coverages as part of your retirement plan.
- Homeowners coverage that provides actual cash value for a loss is less expensive than replacement cost coverage but you will need to monitor the policy closely.
- A personal umbrella liability policy is an inexpensive way to protect your assets from lawsuits.