INSURANCE GUIDE

A major concern that many people face as we get older is providing resources and care for your family after your death. You want to make sure that your spouse, children, and any other family members that rely on you for support have enough money to live comfortably even when you aren’t around. You’ll also want to make sure that you have enough money to support yourself after you retire. Even if you already have a pension, you can actually maximize your pension payments even further with life insurance.

While you’re still working, your company will likely ask you to choose a pension plan. You can opt for a joint pension plan that covers both you and your spouse, and offers a reduced monthly benefit until you both pass away. You can also select a single pension plan, which gives you a much larger payment only until you pass away. You might think the smart thing to do would be to get a joint pension plan so both you and your spouse are covered. However, it may make more sense to get a permanent life insurance policy to cover your spouse and get a single pension plan for yourself. This is because the payout from a single pension plan can be over a thousand dollars more per month than a joint pension plan.

Why Using This Strategy Is A Good Idea

pension benefitThis strategy is particularly helpful if your spouse has an income of their own, but they don’t have to for this to be effective. When you get a single pension paycheck, it will be much larger than a joint pension one would, so you can save some of the money. You also won’t be draining down your pension fund as quickly, and you can still live comfortably instead of having to live on a budget. If you do happen to pass away before your spouse does, you won’t have to worry, because they will have a large income safety net to protect them.

As you get close to retirement, your employer will likely start discussing pension options with you. This is the perfect time to start looking at life insurance policies as well. It’s important that you take your time to shop around for a life insurance policy in this scenario. In order for this money saving strategy to work, your life insurance premiums need to be significantly lower than the amount you are saving by using a single pension. If your life insurance is too expensive, it could actually end up making this option unpractical from a financial perspective.

It’s important that the insurance plan you get to support your spouse has a large enough death benefit to keep them secure and comfortable once you pass away. A good ballpark number to look for is the amount of money they would have received from the joint pension. Multiple the payouts you would have received from the joint pension by the amount of time you expect your spouse to outlive you, and this is the amount that you need to get for your life insurance benefit.

When To Avoid Using Your Life Insurance To Maximize Your Pension

There are some very important factors to consider before employing this strategy to help you save money for retirement. While this strategy is very effective in the right situation, it can actually result in a loss of money if you don’t plan it well. Here are some situations in which you should avoid using pension maximization strategy.

  • You have a chronic health condition or lifestyle factors that will make your life insurance very expensive. Life insurance companies will charge high premiums for those who are in poor health, because they consider them to be a higher risk factor. They may also charge you a high premium if you smoke, are overweight, or have other risky lifestyle practices that they consider to be unhealthy. In these cases, the cost of getting life insurance might not be worth the money you save from taking the single pension.
  • Your spouse is significantly younger than you. If there’s a large age difference between the two of you, you would need a very large death benefit to support them for a reasonable period of time after you pass away. Death benefits this large have very expensive premium costs, which would negate the amount of money that you are saving by taking the single pension.
  • Your joint pension plan offers health insurance or other benefits that are very valuable. The cost of a high value health insurance plan may be worth forgoing the monthly savings of a single pension plan so that both of you have the healthcare you need.

Pension maximization requires some in-depth planning, but if you do it correctly, it can save you thousands of dollars over the years. You will be able to live much more comfortably during your retirement, while still knowing that your spouse is taken care of regardless of how long you live.