As retirement approaches, could your savings and investments provide the financial protection you once relied on insurance for?
After years of working and building wealth, you may be in a stronger financial position than when you first took out your insurance policies. But how do you know when you have enough to manage certain risks yourself, rather than continuing to pay premiums?
The answer comes down to your financial resilience and whether an unexpected event could significantly disrupt your retirement plans.
What Does it Mean to Self-insure?
Self-insurance essentially means using your own wealth to absorb a financial loss rather than transferring that risk to an insurance company.
For example, if you have built up substantial savings and investments and no longer have significant debts or financial commitments, you may be in a position to cope with an unexpected period away from work or a major health event.
As insurance adviser Andy Pender explained in our recent podcast episode, if an unexpected event isn’t going to materially affect your financial situation, there can be a good argument for taking on more of that risk yourself.
Your Ability to Earn an Income is a Major Asset
While you’re still working, your ability to earn an income can be one of your most valuable assets. If illness or injury prevents you from working, income protection insurance can provide a monthly benefit to help cover your regular expenses.
Without it, you may need to rely on savings or investments to support yourself.
As you approach retirement, consider how long you could manage without your usual income. Would your savings cover six months of living expenses, or could you comfortably support yourself for longer if returning to work wasn’t possible?
Your answers can help you assess whether you still need the same level of income protection or whether your financial position allows you to carry more of the risk yourself.
What Financial Risks Can You Afford to Take?
Not every financial risk is worth insuring against, but not every risk is one you can comfortably absorb either. Consider what would happen if you faced a significant medical expense, an extended period away from work or another unexpected financial setback.
Could you cover the costs without selling investments at an unfavorable time, reducing your standard of living or delaying retirement?
It’s also worth considering how much risk you’re comfortable accepting. Two people with similar levels of wealth may make different decisions depending on their lifestyle, financial commitments and peace of mind.
The aim is to understand which potential losses you could manage yourself and which could still have a lasting impact on your financial wellbeing.
Are You Financially Resilient Enough to Self-insure?
There is no universal point at which someone can say that they have “enough” wealth to go without insurance. It depends on your assets, debts, income, dependents, lifestyle and the level of financial risk you’re comfortable taking.
As you move towards retirement, your insurance needs should evolve alongside your financial position. What made sense in your 30s or 40s may not necessarily make sense in your 50s or 60s.
The goal isn’t to have as much insurance as possible. It’s to have the right level of protection for the risks that could genuinely disrupt your financial future. For some people, that will mean maintaining their insurance. For others, it may mean reducing their cover and eventually choosing to self-insure.
Want to learn more? Listen to the latest episode of The Retire Well Podcast, where Andy Pender shares insights into life insurance, changing cover as you get older, and how to decide whether you still need the protection you once did.
Tune in on YouTube, Spotify, Apple Podcasts or your favourite podcast platform to hear the full conversation and help you make more informed decisions about your insurance and retirement planning