Protecting Assets When Clients Age
By Fran O'Brien - May 29, 2019
In terms of where they want to live in retirement, sizeable numbers of boomers in the Northeast, New England and the Midwest are following the lead of earlier generations and heading to warmer climates, which often also are places with lower taxes and a lower cost of living. But many of today’s retirees and soon-to-be retirees are choosing to continue living right where they always lived.
A recent study by Chubb found that while cost of living may be the single most important consideration in choosing where to live in retirement (cited by 55% of those surveyed), nearly as important are being close to relatives (52%), the style of home they would prefer to live in (50%) and safety (48%). In fact, almost three-quarters of those surveyed (72%) would like to stay in their current home as they get older, and 82% feel prepared to age in place in that home.
Many boomer retirees and near-retirees — and especially those who already have experienced some form of disability or are helping to care for someone with a disability — have made structural changes to their homes and have completed or are planning renovations that will more easily and comfortably accommodate change. Typical renovations include widening doorways to accommodate walkers and wheelchairs, adding more lighting, adding grab handles in strategic locations, and removing doorsills and changing floor surfaces to improve safety. Among affluent homeowners, more extensive updates including replacing stairs with ramps, adding elevators or escalators, and renovating kitchens and bathrooms to include easier-to-access cabinetry and safer, easier-to-use fixtures.
Such changes can be costly. In fact, while 85% of those surveyed said they were prepared financially to make the necessary alterations to their homes, 81% described the actual cost as more than they anticipated. While the expense of home renovations can put a larger-than-expected dent in retirement nest eggs, a potentially bigger threat comes in the form of renovated homes being under-insured.
Consider what happened to a couple we’ll call Paul and Lisa, who are 75 years old and live in their long-time family home in Newton, Mass., close to children and grandchildren. Linda started having trouble navigating the stairs in their 1920s colonial and began using a walker, but felt she would soon require a wheelchair. To accommodate future needs, the couple installed an elevator, converted a tub into a shower with a wide entry and no sill in the master bath, removed door thresholds throughout the house, changed the kitchen layout to make it more accessible, and renovated their guest room in case they eventually need a live-in caregiver. Renovations totaled $400,000.
Not long after the renovations were completed, a fire broke out in the attic, which led to their home being completely destroyed. Unfortunately, Lisa and Paul had not informed their insurance company of the extensive changes that had been made and, as a result, the home was not insured up to its current or replacement value. The amount paid out by their insurance company, therefore, was significantly less than the cost of rebuilding the home.
Having adequate and up-to-date property and casualty coverage can cover the risk of damage to a renovated home. And financial advisors need not be P&C experts to help identify and reduce that risk.
If, in the course of their retirement planning for clients, advisors learn of plans to renovate a current home, they can perform an invaluable service by recommending that the client discuss their plans with an experienced property and casualty insurance agent. In making such referrals, financial advisors help to protect clients’ homes and financial nest eggs from what could be catastrophic loss at a time in life when such a loss would be devastating.
Fran O’Brien is Division President, North America Personal Risk Services, Chubb. She can be reached at AskFran@chubb.com.