LifeNet Insurance Solutions Blog

Pension Maximization Using Life Insurance

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When you retire, if you have a defined benefit pension plan you generally have at least 2 options for the payout; single life payout or joint life payout.  With single life payouts your pension check will be larger, but payments stop at the time of your death.  With joint life payouts you will receive less, but the payments will last for the lifetime of both spouses.  The difference in your pension check can be as much as 10 to 35% less for joint life payouts.
Pension maximization is a strategy that allows you to take the single life payout and use life insurance to protect the spouse beyond your lifetime.  It is important to have the insurance in place before choosing your payout option because the choice is usually not reversible. 

Things to consider…

• Will term or permanent life insurance be better for your needs?
• Are you insurable at a price that makes sense with your pension payouts?
• Does your spouse have their own pension? 
• Do you want to pay off a mortgage or debts?

• You have the maximum pension income for your lifetime
• You provide for your spouse through life insurance
• If your spouse dies first, the insurance can be cancelled or used to provide an inheritance for your heirs or charity

• The insurance may lapse and leave your spouse without income (it will only lapse for non-payment)
• The insurance may not provide sufficient income for your spouse

These and other questions will be important considerations to see if pension maximization is right for you.  Talk to an independent life insurance agent who is well versed in the issues of pension maximization.