Why it’s important to think about insurance ahead of retirement

If retirement’s on your horizon, you’ll be keen to make sure your plans stay on track. It makes sense to concentrate on things you can control, such as insurance.

Paying for more insurance than you need can eat away at your retirement savings, at a time when they’re more important than ever. Under-insure and one day you may find you need it and have to use savings or borrow money to help you get through hard times. 

Cover for a changing life

If you’re considering what insurance you may need in the lead up to retirement, a good way to get started is to think about what you really need, and what you don’t. AMP’s calculator allows you to fill in your own details with things you know such as your age, and what you expect, like your estimated expenses, to help you get a picture of your insurance needs.

Another approach is to make sure you’re holding the right insurance for the lifestyle you want in retirement.

Here’s a simple checklist that may help:

1. Ask yourself how much money your family would have if you were to pass away or become disabled.
2. Compare that with how much money your family might need in the same situation, including how they’d manage paying for day-to-day costs like mortgages or rent.
3. The difference between the two can help you work out how much insurance you may need.

Consider your existing cover

Dig out your existing insurance agreements, taking special note of when they’re due to expire and your continued eligibility for the policies they hold.

An important area for many Australians is insurance held in superannuation. These policies can come as part of our super account, and often have an expiry date.

Insurance in super

Insurance in super can help us out when we really need it. Like any type of insurance, it works best when you have the right level of protection for your situation. As you head towards retirement and your life changes, so might your priorities.

As well as Life insurance which pays a lump sum benefit if you pass-away, you might have Total and Permanent Disablement (TPD) in your super. TPD cover may provide you with a lump-sum payment if you suffer a disability that prevents you from ever working again.

TPD could help you pay for ongoing medical expenses, alterations to your home to make day-to-day life easier and help provide future financial stability

Total salary continuance, also known as income protection, is designed to pay a monthly benefit of up to 75% of your pre-disability regular income if you’re unable to work due to injury or illness.

Typically, within super, Income Protection provides you with cover either for a two-year or five-year period or until you turn 65, depending on the terms of your plan.

What to look out for

There are pros and cons of insurance within super. Things to think about if you’re approaching retirement include:

• Cover through super may end when you reach a certain age (usually 65 or 70). That’s generally different to cover that’s outside a super account.
• Taxes may be applied to TPD benefits depending on your age.
• Claim payments may take longer, as the money is normally paid by the insurer to the trustee of the super fund before it’s paid to you or your dependants.
• It’s a good idea to make sure your super balance isn’t being reduced more than it needs to be, by your insurance payments. This is called insurance erosion¹.

Don’t double up and stay flexible

As part of your review, it’s also a good idea to check insurance you hold in super against other policies you might have outside super.

Then compare your cover, check whether you have any insurance double ups – if you have more than one super account with the same type of insurance, you may be paying for more insurance than you need. In particular, for Temporary Salary Continuance (TSC or Income Protection), you’ll most likely only be able to claim up to 75% of your pre-disability income (offsets may apply), regardless of how much you’re insured for or whether you hold it in two accounts.

As well as comparing the level of cover you get, consider any exclusions, such as the treatment of any pre-existing medical conditions, and waiting periods. Remember that if you do cancel your insurance, you might lose access to features and benefits and may not be able to sign back up at the same rate, or at all.

If you are applying for or reinstating your insurance, or are looking to make a claim, it’s also important to disclose your situation to your insurer honestly. Otherwise, the insurer may be entitled to refuse your claim.

Any changes in life calls for flexible thinking, whatever age you are. The lead up to retirement is a great time to review your insurance and adapt to changing circumstances.

^{1  An inactive account is a super account that has not received any contributions or rollovers for 16 months. Learn more at https://www.amp.com.au/insights/grow-my-wealth/protect-your-super-package.}