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Question
I have a life insurance question, please.  Heres my situation. Husband is on Soc Sec Disability (has no pension) for a chronic condition, although not life-threatening. He is 60.  I am 57 and retiring in June from a state job. I will get a lifetime annuity state pension that we can get by on combined with his SSD.  I carry $100k of life insurance through my employer.  My retirement options are straight life (where I get the whole amt with nothing going to my spouse if he outlives me); 50% joint survivor where hed get half my pension upon my demise; 100% joint survivor where hed get my full pension upon my demise.  Realistically, we need the full amount of my pension, plus if I outlive him, Id need the full amount. The survivor options take too much of the pension monthly.  My thinking is to take my full pension with no survivor benefits and keep my $100k life insurance policy for my husband should he outlive me.  I realize the rates go up as I get older. Is there any other type of life insurance I should shop for? We have no burial expenses because we have donated our bodies to medical science. Our house is paid for.  Any suggestions or guidance would be welcomed! Thank you.

Answer
Your question is a good one, and may have wider applicability to people who are retiring under similar plans to your own. While this matter is complicated, for you it will boil down to 1. How much income does your spouse need in the event of your death? 2. How much Social Security will he have at your death? 3. How much life insurance will be needed to make up the difference? A few other considerations include how you will pay for medical insurance until you are age 65 and qualify for Medicare, how much do you have in savings or 457 plan, etc.

A good rule of thumb is that $100,000 of permanent life insurance will generate $5,000 of income if placed in an annuity after age 60.  So, if a given survivor option provides say $10,000 of income to your survivor, you would need a $200,000 life insurance policy to generate this income. While he may not need this amount of income, the logical thing to do is to review your options, decide which option you would logically choose to meet your needs, and compare the cost of the life insurance needed to match this amount with the cost of reducing your pension. Incidentally, there are other benefits to self insuring your pension vs. taking a reduced pension survivor option. These include return of cash values if spouse dies first, naming a contingent beneficiary, and the tax free benefits paid out at death which can result in an income to the spouse that is partially tax free.

You mentioned that the life insurance is through your employer. You need life insurance that lasts for a lifetime. While term life can insure you for up to thirty years, it still leaves your spouse in the lurch if you live longer. Only universal or whole life can provide coverage out to age 100 and beyond.  Before you make your election, make sure you can qualify for a good competitive life insurance policy that guarantees coverage for life. Check to make sure you are dealing with a CLU, ChFC, or CFP. Ask them to help you with calculating the amount of insurance you need and pre-qualifying you for that amount. It is good to have approval on a policy before you start your pension.

Hope this helps.  

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Dave Bowman

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I will answer questions of a general nature regarding life insurance, disability income insurance annuities (fixed and variable) and long term care insurance. Also, questions regarding estate analysis. No legal or accounting advice, as I am not a lawyer or a CPA. I do not sell health insurance, so have limited knowledge of the current status of that field.

Experience

30 years as a life insurance and investment industry professional. Former chapter president of Association of Insurance and Financial Advisors, Buffalo Chapter. CLU designation.

Organizations
Association of Insurance and Financial Professionals.

Education/Credentials
B.B.A Economics, U. of Georgia, 1971.

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Families, professionals, small businesses, individuals.

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