People face a number of risks in the process of daily living. People can generally cover many of them from current assets through self insurance, but here are six that People should consider insuring against.
Property Damage. This is the insurance people have on their car, home, and other personal property to repair or replace it if damaged by fire, storm, theft, or the negligence of someone else. When buying this type insurance, consider carefully the relationship between premium cost and deductibles. By assuming some of the risk through a higher deductible, people can reduce their premium.

Disability. If there is a 42-year-old man, he is four times more likely to become disabled for three months or longer before retirement than people who are to die. This can be devastating for their retirement plans. However, after retirement, people probably won’t need to continue this coverage. They must check it with their employer to see what coverage is available under a group plan. People may find they have sufficient coverage or they may need to buy additional insurance until they retire.

Death. Life insurance is an important part of an overall financial plan, but people must see it for what it is. They should not get led into buying life insurance as an investment. Sales commissions and administrative costs run high. In retirement, minimize coverage since they will have other assets to cover living costs for survivors. Look into converting existing whole life policies to paid-up insurance. If they have a policy that pays dividends, consider having the dividend applied to the premium. One insurance feature that is attractive to retired couples is the “second-to-die” policy. This policy provides cash to help with property taxes and thus eliminates the need to sell other assets when the property passes to children.

Medical Expenses. Everyone is aware of the high cost of medical care. A major illness
or injury could easily wipe out years of savings. Their employer or professional society may offer a group plan. If so, it is probably their best option. If people must buy medical insurance on their own, they must look for a high-deductible, catastrophic policy. Premiums are so expensive on private policies that people probably can only afford to insure against major risk.

Long-term Care. Only five percent of people between ages 75 and 84 are in nursing homes. However, the percentage increases to 19 percent in the 85 and over age group. Seventy to 80 percent of nursing home residents use up their capital in a year or so. Long-term care insurance is available to help with these expenses. Premiums for this coverage increase with age. So, if they are considering it, buy it before the age of 60. As with any insurance, tailor a policy to balance benefits and premiums. People should also include home care as well as nursing home care so they would not be forced to leave their home until they physically have to. An alternative to long-term care insurance is a financially sound life-care community. These communities, located throughout the country, provide care for residents as needed. Typically, there are three levels of care—independent living, assisted living, and custodial care. There is an entrance fee of several thousands and a monthly charge consistent with the level of care provided. While these communities are not inexpensive, residents are assured of the care they need throughout their lifetimes.

We can do this by entering into a contract that costs a little each month as protection against a possible loss. People might never have enough money to rebuild their home if it burned, so they pay a company each month to assume that risk. When thousands of others do this, they receive the protection People seek at a low cost. Transferring risk may sound easy. All People need is to find the right policy, for the right need, at the right cost. Write a check once a year and hope nothing happens. Of course, it is more complicated than this. When people retire, they must find policies that cover new risks or close gaps in existing ones. Policies can be deceptive. People may think they are fully covered when they are not. There are sometimes exclusions that limit their policy. Also, People must consider cost. It’s impossible to live with style if they spend all their discretionary income on insurance premiums.

The more money people have, the easier this is to do. For example, People might buy dental insurance, but perhaps their dentist does not choose to participate in such a plan. The policy is good only if people switch dentists. Solution? Insure themselves. Instead of paying into a policy each month, use the money to build a kitty for future dental bills. Such a fund becomes a self insurance policy. Self insurance works best when the risk is small. Deductibles are, in a sense, self insurance. The more money people have, the higher the deductible can be.

There are three ways to manage risks. The best plan takes all three into account and develops a strategy that fits their personal financial situation.
Take all Possible Preventive Measures
If the time comes when people become a little unsteady on their feet, they should have enough common sense to stay off roofs and out of slippery bathtubs. Unless People take common sense precautions, all the insurance in the world can be meaningless. Insurance only cushions risks with money after something bad happens. To live with style, their objective should be to keep accidents and illnesses from happening in the first place. Take a risk management approach that is, avoid risks without hurting their lifestyle and then transfer the remaining risks to others. Like other aspects of life, risks can be managed.

Their objective is to develop an insurance package that accomplishes the following goals.

GOAL 1: Greater Peace of Mind. The secret is to be able to look down the road recognizing real risks, but not creating ones that are not there. When a risk is identified, one should pass it along to an insurance company and then relax. No part of life, especially retirement, is totally worry free, but the more worries we can transfer to insurance companies, the better.

GOAL 2: Less Confusion and Frustration. For most people, insurance contracts are hard to understand. There are too many clauses, too many exclusions, and too much small print. Many capable people throw up their hands in defeat. This chapter should help simplify the problem.

GOAL 3: Money Saved. Senior discounts provide opportunities to stretch insurance money if people select the right policies and avoid duplication. Saving money in areas where people need less insurance means they get more protection where their need is greater.

GOAL 4: More Help from Insurance Agents. Among professional people, their insurance agent should stand beside their medical doctor and lawyer. The more they learn about insurance, the more effective they will be in building a sound, rewarding relationship with their agent. The better their relationship, the more help they should receive.

Insurance is accepting a small loss now (premium payment) to prevent a potentially larger loss in the future. If people take out a policy to protect themselves against a loss (such as theft), in a sense, People win if they are robbed. People were smart enough to protect themselves. On the other hand, if they paid the premium for 20 years and were never robbed, they still won because they transferred the risk at a small cost and gained peace of mind. Insurance is a way to transfer risk and worry to another so we come out ahead. No time is more important to transfer worry than when we retire.

As People near retirement, protecting themselves and their possessions takes on a new dimension. For example, health insurance becomes increasingly important. Although they may take fewer risks, they still need more insurance protection because accident and health problems tend to accelerate as they grow older.

Now that People have reviewed the strategies, options, and tax rules, what seems like the best approach for People? It’s unlikely that one of the strategies presented will be exactly right for People. Based on their comfort zone, People should be able to combine elements of two or more into a plan with which People can live.

Withdrawals from tax-deferred plans are taxed as ordinary income in the year received under federal and state income tax laws. A systematic withdrawal plan may reduce their tax liability in the long run by keeping People out of the top tax brackets in later years.

If People want to be sure something is left when People die, here’s a plan that will work for People. Harvard University’s endowment fund developed a spending guideline in 1973 to ensure a person wouldn’t prematurely run out of money. The rule assumes a balanced portfolio allocated half to stocks and half to bonds and cash equivalents. It limits the first-year withdrawal to four percent of the portfolio’s total value. Then, in each following year, increase this amount by the previous year’s rate of inflation.

Today’s computer technology makes it easy to combine this approach with one designed to deplete capital. With assumptions on inflation, rate of return, and longevity, a withdrawal schedule can be set up. Such a schedule will increase each year by their assumed rate of inflation and carry People through the specified number of years. With such a spending plan, it is imperative that People monitor their assumptions and make adjustments as required. One simple way to do this is to calculate a capital balance for each year into the future. Then, compare their actual balance to this figure.