Liability Insurance Needs for Retirees
When most professionals reach retirement (or a time when they become financially independent), the burdens and obligations associated with career or business appear to be in the rearview mirror. These people may look forward to a slower personal pace, without a care in the world outside of traveling and spending time with family and friends. Perhaps there’s a desire to continue working in some reduced capacity or to put decades of experience to use at a non-profit organization.
While that may sound appealing and fulfilling, risks for retirees continue to lurk around corners, just as they did during working years. Let’s take a look at personal and professional liability insurance, and whether such coverage may continue to be relevant for retirees.
If it rains in retirement, you’ll still need an umbrella
For personal liability needs, not much may change between pre-retirement and post-retirement. To the extent that one still owns a home and drives a car, the underlying limits of coverage should most often remain consistent. There’s a good chance that young adult drivers will leave the nest and reduce the amount of household insurance needed, which in turn can lower premium costs.
An umbrella policy picks up where those underlying homeowners and automobile policy limits end and provides excess coverage in the event a retiree is found liable for injuries caused by an auto accident or experienced on their property. This is usually one of the most cost-efficient lines of insurance, on a per-million-dollars basis, that a consumer will find.
There may be instances where personal liability exposures in retirement could actually increase. For example, did you finally purchase that boat or plane as a retirement gift to yourself? Or perhaps you decided to get a dog for companionship who likes to greet visitors with his teeth. Maybe you’ll get around to installing the pool in the backyard to enjoy with your grandkids and their friends. All of these examples represent new risk exposures. If changes like these occur, you’ll want to speak to your Corient Wealth advisor and a licensed insurance broker to make sure there are no gaps in your personal insurance coverage.
Downsizing from home ownership to a retirement community may free you from the higher costs related to homeowner’s insurance, but most advisors and insurance professionals still recommend maintaining a renter’s policy to keep the liability coverage that comes with it. We may have fewer “things” to insure as we get older, such as homes, autos or earned income, but high net worth retirees may still be targets of costly litigation.
An end to work may not end professional exposure
Many professions require professional liability (or malpractice) insurance. For example, doctors, dentists, architects and attorneys often require professional liability insurance in order to maintain licenses during their working years. One might assume that when a professional in these fields retires, they would no longer need professional liability insurance. This may be correct, but not under all circumstances.
There are two main types of professional liability insurance. The first is referred to as an “occurrence” policy. With this type of coverage, the professional is covered for any incident that happened during the policy period (i.e., when the policy was in force). This is true regardless of when a claim is reported. For instance, let’s assume a doctor maintained an occurrence policy for 10 years and has now been retired for five years. If a patient sued the doctor today for a mistake that happened eight years ago, the policy would cover the damages and legal fees.
The second type of policy is referred to as a “claims-made” policy. This type of policy provides coverage for claims that occurred and that are reported within a specific timeframe set out in the policy. In this case, if the doctor was sued for an incident after the policy had been cancelled, then that claim may not be covered. With a claims-made policy, one can add a “tail coverage endorsement,” also known as an extending reporting endorsement, that offers protection from claims reported after you’ve retired and your insurance policy ends. There is typically no need to add tail coverage to an occurrence policy.
So, what do professionals need to think about with regard to professional liability insurance when they transition into retirement? They may want to ensure that they either had an occurrence policy in force during their careers that would cover any prior acts, or to add tail coverage if that’s not the case. Also, some professionals may donate time and talents during their retired years, such as an attorney doing pro bono legal work for a non-profit, or a dentist donating services at a clinic. If the retiree is still practicing law, medicine or other professional services, it’s important that professional liability insurance remains in place, so they’re not subject to current or future claims.
Individuals will most likely continue to need some level of personal liability insurance throughout retirement. Levels of coverage may either stay the same, increase or reduce over time. For retired professionals, they need to understand how lawsuits may still arise from previous years, even after they stop practicing. In order to mitigate the risk of exposure from professional liability claims that arise from past conduct, it’s incumbent upon the professional to review their particular professional liability policy before they transition into retirement. Current activities in retirement, both personal and professional, will help to dictate how much liability insurance is ultimately required to protect hard-earned financial resources from liabilities that can still arise.
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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.
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