Insuring Your Home in Retirement
Celebrity chef and lifestyle expert Rachael Ray is quoted as saying, “Good food and a warm kitchen are what make a house a home.” It can also be argued that homes are made of wood, sheetrock, roofing, windows and other materials. All of these things, including furnishings, collectibles and the contents of the home, can be susceptible to theft or damage from water, wind and fire.
With that in mind, we wanted to continue our series on the insurance coverage you may need through retirement, and how retirees should look to protect their homes, probably one of their most valuable assets.
My mortgage is paid off…do I need homeowner’s insurance?
Many retirees look to pay off their major debts before making the decision to retire. Even if they’ve taken advantage of low rates via refinancing opportunities, the idea of being relatively debt-free in retirement can be appealing. When a mortgage is ultimately paid off, the title of the home resides solely with the homeowner. The asset is no longer a piece of collateral for the bank that had extended the credit. Normally, the bank requires the homeowner to maintain adequate homeowner’s coverage in order to protect that collateral during the term of the mortgage. When the debt is retired (much like the homeowner!), there is no longer a contractual obligation to maintain insurance on the home.
Does this mean we should cancel our homeowner’s policy and save money on premium dollars? In most cases, the answer is a hard “no.” While we may not be obligated to cover our risk, the cost of replacement can be excessive if the home is damaged or destroyed. More often than not, the cost benefit of transferring that risk to an insurance company is worthwhile. According to Quadrant Information Services, the national average homeowner’s premium in 2023 is $2,417.10. Depending on the value of the home and the state, premiums can vary widely. That said, it is a relatively small price to pay in relation to the hundreds of thousands of dollars (or more) it may cost to reconstruct and refurnish a home destroyed by fire or weather. The liability coverage that the policy provides may also protect the homeowner from injuries sustained on their property.
From owning to renting
One way to save money and perhaps simplify home maintenance responsibilities is by downsizing. In general, the smaller the home, the lower the cost to insure it (excluding other risk variables like location). Eventually, a retiree may see the benefit of selling their home altogether and renting in a continuing care retirement community or an assisted living facility. If a retiree goes from owning to renting, then they do not necessarily need homeowner’s insurance. They would, however, most likely find that maintaining a renter’s policy is cost efficient—and conducive to gaining peace of mind.
A renter is typically not responsible for damages sustained to a structure. The landlord or community owner is responsible for the grounds and structures of an apartment building, condo or retirement community. That said, the retiree would still want to insure the contents of their residence in case of damage or destruction as the result of water, fire or other covered risk. This policy may cover furnishings and other belongings that may be expensive to replace. As well, it would benefit the retiree to inventory their personal belongings and add endorsements for specific items of high value, such as jewelry or collectibles. In addition to damage, the renter’s policy normally would also extend coverage to theft and add liability coverage for the home’s occupant.
Desirable locations are getting tougher to insure
I recently attended an insurance brokerage’s presentation and the loud resounding theme was how difficult it is for residents of particular states to obtain and keep homeowner’s insurance. In particular, Florida and the coastal areas of the Carolinas are seeing insurance companies fleeing their states as hurricanes appear to be more frequent and more severe. California has also been a challenging market given the growing number of wildfires and mudslides.
Retirees often dream of spending their golden years within proximity to beaches. This may, however, require the understanding that they need to ensure their home is up to current hurricane standards. Even with that, the probability is high that their coverage may be non-renewed if claims are excessive in their area. In the event a policy premium begins to approach repair or reconstruction costs, a retiree homeowner may need to self-insure, or retain the risk and come out of pocket for costs associated with damages. While states like Florida may be appealing when it comes to avoiding state income taxes and state estate taxes, identifying the availability of adequate homeowner’s insurance should be on the “to-do” list prior to making a move.
Get help to assess your coverage needs
To summarize our discussion on insurance, while certain expenses may go away as we transition into retirement, there are risks related to our homes that remain. Insurance policies for homeowners and renters can help cover those risks. While it may be tempting to cancel policies when a mortgage is paid off, one should think long and hard about the financial impact a loss can present without having insurance. Also, while premium costs may be eliminated for a homeowner’s policy when a property is sold, if renting is the new mode of housing, a renter’s policy will help to protect valuable contents from damage or theft. Finally, take into consideration the excess cost or lack of availability of insurance if your retirement destination represents a higher-risk location. As always, consult your Corient Wealth Advisor and an insurance professional when reviewing or making modifications to existing coverage, or when putting new insurance in place.
Other topics in this series:
- What Insurances Do I Need in Retirement?
- Liability Insurance for Retirees
- Covering Your Adventures – Travel Insurance for Retirees
- Identity Theft Insurance – As a Retiree, Do I Need This?
- The Transition from Disability Income to Long-Term Care Insurance
ABOUT THE AUTHOR
James Ciprich, CFP®, MBA
Jim is a Partner, Wealth Advisor and Investments Leader in our Morristown, NJ, office. Serving a broad range of clients, he has a particular focus on retirees considering care and housing options. Jim founded legacy firm RegentAtlantic’s Senior Solutions practice specialty. He is often asked to speak at retirement communities and client events and is frequently quoted in the media. Jim also serves on an advisory council to the MIT AgeLab. He holds the CERTIFIED FINANCIAL PLANNER™ certification and has an MBA and a BA in Economics from Rutgers University. He served as an adjunct professor at Fairleigh Dickinson University in the CFP® program. Jim is a past president of his local estate planning council, and he has also served as a trustee for Morristown United Methodist Church. In recent summers, he has volunteered with Appalachia Service Project. In a prior career, Jim worked in the music industry, where he was awarded multiple RIAA-certified gold and platinum albums.
This information is for educational purposes and is not intended to provide, and should not be relied upon for, accounting, legal, tax, insurance, or investment advice. This does not constitute an offer to provide any services, nor a solicitation to purchase securities. The contents are not intended to be advice tailored to any particular person or situation. We believe the information provided is accurate and reliable, but do not warrant it as to completeness or accuracy. This information may include opinions or forecasts, including investment strategies and economic and market conditions; however, there is no guarantee that such opinions or forecasts will prove to be correct, and they also may change without notice. We encourage you to speak with a qualified professional regarding your scenario and the then-current applicable laws and rules.
Our clients must, in writing, advise us of personal, financial, or investment objective changes and any restrictions desired on our services so that we may re-evaluate any previous recommendations and adjust our advisory services as needed. For current clients, please advise us immediately if you are not receiving monthly account statements from your custodian. We encourage you to compare your custodial statements to any information we provide to you.