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Insurance Considerations when Retiring Early

Updated: Oct 16, 2023

If you have the fortunate opportunity to make work optional in your early 40s or 50s, you have probably thought about insurance needs/risks, with health insurance being the most common.

Retiring in your 40s is quite early, and while it is nice to not be bound down to a job, it brings its own set of considerations for your insurance needs. Below are some key considerations for insurance if you are approaching early retirement:

Health Insurance: Health insurance is crucial, especially as you retire early since your health plan will not be available via an employer. This is often the most common topic brought up in my discussions with potential early retirees (outside of the actual retirement plan, of course). Luckily there are a few options. You can locate health plans on or opt for a Health Insurance Co-op. You may also consider staggering retirement dates with a spouse if you are married to ensure continued coverage for a longer period of time. Ensure that the policy you choose provides adequate coverage for your medical needs and potential emergencies.

Life Insurance: The need for life insurance may change as you retire. You may have a term life policy that is approaching the end of its term depending on when you bought it. You may even have a group life policy with your employer that you will need to take into consideration. Ultimately, life insurance is intended to provide your loved ones with financial support in order to pay costs associated with your eventual passing, be a gift to a child or someone else, and replace would be income. If you have substantial enough assets to cover a loved one’s financial needs in the untimely event of your passing it may not make sense to retain this type of coverage, but it ultimately depends on your specific needs/wants and your overall savings.

Long-Term Care Insurance: Long-term care insurance becomes more relevant as you age. It covers the cost of assisted living, nursing home care, and other related expenses. Retiring early means that while this risk is not at the top of mind right away, consider the impact of inflation for 30-50 years. The potential cost of skilled care will likely be astronomical notwithstanding any legislation changes. The cost of skilled care is often a huge drag in the later years of your life, and when factoring in inflation, this is often a very costly expense. Some permanent life policies do include coverage for LTC, and may be worth reviewing.

Disability Insurance: Disability insurance provides income if you become disabled from a serious injury or event and are unable to work. It is usually offered as a workplace benefit. If your retirement plan involves living off investments or other passive income, usually Long Term Disability would be ideal to look into in case of increased costs due to the disability.

Property Insurance: If you own property, whether it's your primary residence or rental properties, you'll still need property insurance to protect against damage or loss. This includes homeowner’s insurance, renter’s insurance, and potentially landlord insurance if you're renting out properties. Be sure to select a policy that has the appropriate amount of coverage for your home and assets within the home.

Travel Insurance: If you plan to travel extensively during your retirement, travel insurance becomes important. It can cover medical emergencies, trip cancellations, and other unexpected events while you're away from home. Be certain to review how different health emergencies and billing are handled in other countries prior to traveling.

Umbrella Insurance: This is one of the most overlooked but important elements of a financial plan, and its relevance is even more important to an early retiree. Umbrella insurance is essentially net worth insurance and covers any excess costs in the event that an existing insurance policy’s coverage isn't sufficient enough. This may come up with an auto policy or homeowner’s policy in which an adverse event happens where the policyholder’s insurance does not fully cover the damages.

All of these insurance considerations can be daunting and may even make one think twice about their plans. The best course of action is to always review the total cost of having a comprehensive risk management plan in place as it may prevent a catastrophic event from thwarting a sound early retirement plan.


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