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.

In some cases, the risk of personal liability may actually increase after retirement. For example, did you end up buying that boat or plane as a retirement gift for yourself? Or maybe you’ve decided to get a companion dog who likes to greet visitors with his teeth. Maybe you’ll get around to installing a pool in your backyard to enjoy with your grandchildren and their friends. All of these examples represent new exposures. If such a change occurs, you will need to speak with your THERESA HORIZONWAVE LLC advisor and licensed insurance broker to ensure there is no gap 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.

In summary

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.

This information is used for educational purposes and is not intended to provide accounting, legal, tax, insurance or investment advice and should not be used for accounting, legal, tax, insurance or investment advice. This does not constitute an offer to provide any services or a solicitation to purchase securities. These are not recommendations for any particular person or situation. We believe the information provided is accurate and reliable, but do not guarantee its completeness or accuracy. Such information may include opinions or forecasts, including investment strategies and economic and market conditions; However, there can be no assurance that such views or projections will prove to be correct, and they are subject to change without prior notice. We encourage you to discuss your situation and the applicable laws and rules at the time with a qualified professional.