When it comes to an early retirement, we have to realize that we have to view the need and type of insurance differently. Before, we would have to insure against a break in our income due to job loss, illness or death. We had to make sure that no matter what happened to us, our dependents would not have to make too big a change and sacrifice in their lifestyles.
However, after stepping into early retirement, we no longer have to worry about the break in income due to job loss or illness as we are no longer dependent on physically doing something in order to earn money. Our money would by then be "earned" via our streams of incomes such as portfolio income, rental income, annuities and other investments.
With that in mind, the insurance that I feel are necessary after retirement are death, hospitalization and probably some critical illness. The reason I chose these is because these are situations that are unexpected and will no doubt consume a large amount of money which your emergency fund might not cover. During times of crisis, especially after retirement, we do not want to sell away our investments to pay for these emergencies. Selling away our investments would not only decrease the amount of income we will receive in future but also cause plenty of unnecessary stress and worry.
It might be all good if we needed the money and sold out investments when the markets are up. However, what if the markets are down when we needed the money? We would definitely be selling at a great loss we might never recover from. That is not something we should risk out money on.
We should therefore hedge the majority of our risks by buying the required insurance. We should not buy insurance that are no longer essential to us as they will only hinder our cash flow whilst providing minimal returns.
Don't settle for the first company that approaches you, do some shopping around and see which plan suits your budget and needs. Read about the types of policies that are available and try as much as you can to understand how they work. There are as many unscrupulous advisers as there are advisers with good intentions out there. Don't fall victim to their words of infinite possibilities. Listen to what they say and make your choice. Don't let them make the choices for you.
As always, save more, spend less and invest wisely.
P.
Insurance has became one of the key component for retirement planning (early or typical retirement). As none of us can know what will the future be like, it is important that we get ourselves well covered.
ReplyDeleteCurrently, I bought a term insurance cover my death, total and permanent disability, a medical insurance to cover my hospitalization bill and a accident plan to cover accident risk. I agree with you that we should transfer the risk of death, hospitalization and critical illness to insurance company by paying adequate amount of money as fee.
I gathered information about insurance on internet (mostly from http://tankinlian.blogspot.sg/), it seems life insurance and investment linked policy is not a good deal for consumer as it provide the highest commission rate and distribution cost (all these fancy term are taking money from the consumer to fund the insurance company operation).
I believed there will be more and more confusing product coming to the market as the consumer education level go up and financially alert. When dealing with money management, it is always a zero-sum game. Someone gain is another person loss.
By the way, what kind of protection are you buying now?
Hi, I currently have a whole life insurance which I should be cancelling and changing to term before the end of the year, I have hospitalization and critical illness. Have an endowment I bought some time ago too but that's not considered protection. I am actually considering buying a mortgage insurance in the near future, have not decided yet but I feel it would be a necessity should I want to enter a semi retirement phase before fully paying off my mortgage.
DeleteThat sounds like a good plan. I also agreed with you on the mortgage insurance part. Mortgage normally huge(especially in Singapore property market), some coverage on that will be give you some peace of mind.
ReplyDeleteI bought mortgage insurance on my mortgage too.
Hey YKH, I actually emailed you few weeks backs. Don't think I got any reply from you yet. Might have gotten the wrong email. Or kenna spam folder.
DeleteHi I did not receive your email, can you email me again at http://journeytoearlyretirement.com/about-me/?
ReplyDeleteGreat insights! If you want to experience stress-free and convenient retirement, you should start getting insured. You'll never know what will happen in the future, so it's better to be prepared. Make the most out of paying for health, life, housing, and car insurance while you still can
ReplyDeleteHershel Duffey @ DaveWilliamson.net
Critical Insurance cover is the key component and main point of thinking after retirement. So insurance plays a vital role which must be in effect soon after we are settled in our life.
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