01 Jun Health insurance when a spouse dies

Q. I am 57 and my husband is 62. He is retired and I would like to retire next year. I have medical coverage through my husband, but I would lose that if he passes away. I will have half his pension. If he dies before I am eligible for Medicare, I will either have to apply for COBRA, which is cost prohibitive, or buy my own policy. Would having a term life insurance policy on my husband until I reach age 65 be a good option to help pay for premiums? How much life insurance would be “enough” to covers premiums for a decent policy for approximately seven years?
— Wife

A. Evaluating your health care coverage is an important step when deciding if you are retirement ready.

This is especially true if you are considering retiring before age 65 and will need health insurance coverage before you become Medicare eligible at age 65.

Options are limited and can be quite expensive, said Bryan Smalley, a certified financial planner with RegentAtlantic in Morristown.

In your case, its sounds like you are comfortable with both your financial and health insurance situation if you were to retire and your husband were to live past your age 65, Smalley said, but you’re concerned about both your financial and health insurance situation if your husband were to die before then.

Before getting to the health insurance issue, Smalley had questions about your overall finances.

“I suggest that before you make a big decision such as retiring, that you make sure that your financial plan is on sound footing, especially if something were to happen to your husband,” he said.

Imagine for a moment that something did happen to your husband.

Would you be able to live off of half of his pension and any savings that you have accumulated?

Smalley said Social Security would become an option as early as age 60 — the earliest a surviving spouse can start collecting benefits — but will Social Security, your husband’s pension and your savings be enough to get your through a 30- to 40-year retirement?

If yes, then great, we can move onto the health insurance discussion, Smalley said. But if not, then you will want to evaluate your options.

He said perhaps working a few additional years will allow you to build up a bigger nest egg and increase your Social Security benefit, not to mention keep your current savings intact if not growing because you will not need them now to live off of.

And yes, Smalley said, life insurance on your husband’s life would be an option to consider.

“However, at age 62 and if his health is not the greatest, it could be an expensive option, perhaps even cost prohibitive,” Smalley said. “So before your retire, it is important that you give a good solid look at your financial plan to make sure you are going to be okay, especially if something were to happen to your husband.”

Regarding your health insurance options between retirement and Medicare age, Smalley said, there are really three main options: employer retiree coverage, COBRA and an individual policy in either the public or private marketplace.

He said in a situation where your husband is deceased, the employer retiree coverage is no longer an option and you are left to choose between COBRA and an individual policy.

“The nice part of COBRA is that it is a continuation of the coverage you currently have through your husband’s former employer,” Smalley said. “However, it is usually costly because you have to cover both the employee and employer portion of the premium cost along with a 2 percent administrative charge.”

On top of that, it only lasts for a short period of time – 36 months in the case of a surviving spouse, he said.

If COBRA is not the right choice for you, your options come down to the plans offered on the individual marketplaces — both private and public. Here you usually are able to choose from a plan from one of three different categories, and sometimes there are additional categories, Smalley said.

“The difference between the three categories will center on premium costs and coverage,” he said. “Plans with lower premiums tend to have less coverage, which may be okay if you do not have high medical costs, and plans with higher premiums tend to cover more, which may work out great if you have high medical costs.

But, Smalley said, even within the same category the premium costs can range greatly.

For instance, here are the 2017 price ranges for individual policies for your age offered by different carriers in New Jersey. The price ranges were obtained from the Individual Health Coverage of New Jersey website using the 2017 calculator:

• Bronze Plan – $578/month to $1,205/month
• Silver Plan – $645/month to $1,471/month
• Gold Plan – $1,147/month to $1,813/month

Smalley said certain individuals, based on their income level, may qualify for tax subsidies in the public marketplace, and this would help defray some of the costs of insurance. However, this assumes that the public marketplace is still in its current form when you would need to access it, Smalley said.

From here, he said, an important step will be to evaluate what the potential costs of health insurance would be for you if something happens to your husband.

He said you can use a cost estimate from above and add it to your other estimated costs in retirement.

“From there you should have a good idea if your husband’s pension and other savings will be enough to cover you until Medicare kicks in — which should reduce your health insurance costs,” Smalley said. “If there is a shortfall, you can price out life insurance to see its cost or consider working for a few additional years in order to put yourself in a better position both financially and from a health insurance perspective.”

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This post was first published in June 2017.