• Life Insurance Replacing Spousal Pension

  • Financial Mistake: Not considering life insurance in lieu of a pension election option with a spousal benefit.

    Buying Life Insurance Instead of Taking a Spousal Pension Option

    For those married with pension options, an election to provide a spousal benefit typically could result in a re-duction of your income of up to 25% or more (depending on the option you select). Often, this still leaves the spouse with only a percentage of this reduced check.

    When a spousal pension election benefit is chosen and you outlive your spouse, you have elected a redu-tion in your pension check for the rest of your life for an additional benefit no one will ever receive. In addition, this pension election often leaves no residual benefit to other family members.

    Life insurance can be a viable alternative to taking a spousal pension check. A life insurance death benefit provides your spouse money that they can convert into a lifetime income if you die first, OR could be left to other beneficiaries if you spouse does not outlive you.

    Here are some details regarding utilization of this strategy:

    ♦ The life insurance monthly premium can often be funded from the difference between the single
      pension option (higher check option) versus the option of the spousal benefit (lower check option).
      Sometimes the premium for the life insurance needed is considerably less than this difference in
      pension income, netting a higher income after paying for the life insurance.
    ♦ Often times life insurance intended to replace a pension should include permanent coverage.
      However, sometimes it can be more cost effective to utilize a combination of permanent and
      term life coverage.
    ♦ A pension replacement strategy should be investigated preferably 4 to 6 months before an
      expected retirement date, though some people take care of this years in advance. This is
      because you want to have your life insurance approved and in force before you elect not to
      take a spousal pension.