Life Insurance Can Help You Maximize Your Pension Retirement Income.
To many people, life insurance has morbid connotations attached to it because they do not want to talk about, or even acknowledge death. But, there are forms of life insurance that are thought of very positively.
Actually, there are two kinds of life insurance. One kind that protects people if someone doesn’t live long enough, and there another kind that protects people if they live too long. Too long meaning they have outlived their resources; there is no money left!
Life insurance is a financial product that uses mortality tables to determine premiums (payments) and payouts (death benefit).
A pension is a financial product that guarantees an income source based on life expectancy and the payments made into it. Wait a minute, what was that? A financial product that is based on life expectancy as determined by mortality tables, that sounds like life insurance!
What is a Pension?
Pension income is a form of a life insurance payout and coordinating this income insurance with the common concept of life insurance can allow someone to maximize pension income. People living off a pension need life insurance.
For a hypothetical example, when making the permanent pension decisions at the start of retirement the choices might be a $2,000 payment to the pensioner every month for his or her whole life, or a $1,500 payment to the couple (pensioner and spouse) as long as at least one of them is living.
In a situation like this the first thought people often have is that they want to make sure the spouse can maintain some income when the pensioner dies. However, if they choose to take the lower income option to accomplish this goal then they have bought very expensive life insurance that may not even pay a benefit!
Instead the couple could, before making the pension payout choice, obtain life insurance on the pensioner that would support the spouse when pension payments stop upon death. The premiums for an appropriate life insurance policy would be less than additional pension income for the single life payout so there is am immediate benefit in cash flow.
Who Can be the Beneficiary of a Pension?
Another benefit is in choosing beneficiaries. Under the pension, the spouse is the only person who can be included to receive income as a beneficiary of the dual life option. But the owner of an insurance policy can choose anyone to be a beneficiary in addition to the spouse. The pensioner could also give to a charity, fund an estate that controls assets for grandchildren, or anything else.
What if the spouse were to pass first under the lower payout, dual life choice? That lower income choice is still locked in forever for the surviving partner. That expensive life insurance would never pay out!
If this occurs while taking the higher payout with life insurance, then, if there is no other need for the insurance then the pensioner can cash in the policy, stop paying for the policy (lapse), or sell it through a life insurance settlement company.
Pensioners need life insurance for higher income during their lifetime and more options for a lasting legacy.