Insurance instead of joint survivor pension option?

Your premise is VERY correct, unfortunately you are confusing the terms Life Insurance & Annuity in the discussion. If you "opt" to take the Life Annuity payout of your Pension Plan, then in all probability the amount that you would receive will be considerably more than the amount that you could receive with a "joint & Survivor". That difference (and you can get any number of illustrations to show that) should then be sufficient to purchase a Whoel Life or Universal Life Policy, on YOUR Life, with your Spouse as the Primary beneficiary.

a) the longer you live, the greater the amount of Cash Value there would be built up in the contract if your wife dies before you, and YOUR income would then increase by the amount of the premium that you no longer pay. b) if you die first, then the DEATH PROCEEDS payable to your wife should be sufficient to provide an income compareable to the amount that YOU had been receiving when you were alive. (this too can be illustrated.)

Answered above, you do NOT purchase an Annuity, you DO purchase Life Insurance

Cal Lester CLU

Actually, by law, if you are married, you receive a joint and survivor annuity. The only way you can get a single life annuity or any other type of payout is if your spouse signs away her rights to receive the survivor lifetime annuity.

Presuming you mean, you would buy a life insurance policy on your life with some portion of your single life pension(annuity) payment, you need to be very careful that you can afford to pay the insurance premium as long as you live. Otherwise, there won't be much, if any, money for your spouse to buy an annuity with for her remaining lifetime at the time of your death.

Life insurance can be expensive if bought at a later age. There are many circumstances in which you could default on many different types of policies and end up with nothing. E.g. Term insurance premiums may not be guaranteed and may rise. Market based policies may lose money and require greater payments. Cash value may not build up very fast, since many policies have large up front expenses.

Presuming your life insurance does provide enough to replace the survivor benefit at your death, your spouse's annuity will not be insured by the Pension Benefit Guaranty Corporation as your single life pension fund annuity was. So, she will be reliant on the solvency of the insurance company you choose or any State Guaranty Fund.

Frank

Thanks but I do understand the difference. Life insurance might work if I could be certain that the proceeds of the life insurance would be used to purchase an immediate fixed annuity that would provide an income equal to the amount of the pension for the remainder of my wife's life. The problem is that there is no way to predict the cost of the annuity in advance hence there is no way to determine the amount of insurance needed. There is no way to determine the present value at an unknown future date of an income stream starting on that unknown date. To do so you have to guess at the rate of return that will be available on that unknown future date and that introduces an unacceptable level of uncertainty in this case.

If I recall correctly the example I read about used something called a reversionary life annuity (I may well have that term wrong as it has been awhile since I read the article). I believe the explanation of this type of policy was that if I die first it would provide an annuity for my wife and if she dies first I would recover the premiums as payments over some period of time.

Any other suggestions?

Bill, Stick with the Joint Surviorship Option. The cost of the Insurance will increase, and in a cash value policy, if you don't increase your payments, the increased cost of Insurance comes out of your "CASH VALUE". There are alot of questions I would want to know about you before I really offered any advice. Age, Time Until Retirement, "What your wife thinks!", etc.

Andrew

Sit with a trusted advisor and run a pension maximization analysis. Pension Max can review the particulars of your situation and determine the best choice.

Often it is taking the A option and buying life insurance.

The above admonision is basically true, but very missleading. You would be purchasing (or at least SHOULD) a GUARRANTEED policy. The Cash Value WILL build up as GUARANTEED.

In all probability, the WIDOW would elect to receive a Life Income from the GUARANTEES in the Life Contract. Cal Lester CLU

If you re-read my post, you will see that at no time does anyone NEED to BUY an Annuity. YOU have purchase a Life Insurance Contract, and at you Death, the FACE value of that policy should be sufficient to provide a Life Income to your WIDOW. Cal Lester CLU

Not at all true. A GUARANTEED WHOLE LIFE POLICY will have a FIXED premium that NEVER increases. There are other contracts that offer similar provisions. The only time that the C.O.I. comes out of the current C.V.A. is in an Interest sensitive policy (U/L) that was UNDERFUNDED originaly.

Cal Lester CLU

EXCELLENT advice Cal Lester CLU

I guess I was not clear. One of my concerns with life insurance is that you cannot tell me today the amount of insurance (face value) that will be required in the year 2020 when I die to provide my wife with an income of $N per year for the rest of her life. Unless I am missing something (which is certainly possible) the best that any of us can do is guess based on what rate of return we _think_ she might be able to get when she invests the proceeds of the insurance at the time of my death.

The pension has zero risk attached since it is small enough to be fully covered by PBGC insurance. An annuity that would pay the required $N per year on my death has one risk factor, namely that the issuing company will be able to make the payments. A life insurance policy has two risk factors. The first is whether the issuing company will be able to pay and the second is whether the face amount of the policy will provide enough capital to generate the required $N per year of income for the rest of her life given the rate of return that is available at that time.

The only condition under which that much risk makes sense, IMHO, is if there is enough other income that my wife could live without the insurance/pension provided income and the cost of the insurance was substantially less than the difference in the single and joint pension benefit so that we would have significantly more money while we are both alive.

The reason I am investigating this is that we _might_ take the risk if we could save an appreciable amount of money by getting a policy from a very highly rated insurance company that would guarantee to pay a specific amount per year to my wife starting at the time of my death. Under no circumstances will we take the additional risk of not knowing how much income the insurance will provide for her. One reason for this is that over half of our retirement income will come from our investment portfolio and that portfolio has been carefully designed to incorporate all of the risk we believe is prudent.

I do believe that you might have missunderstood the potential of your current pension plan. It MOST cases, the PLAN will pay a STIPULATED SUM for your life, and a percentage of that amount for your spouses life. NORMALLY they do NOT GUARANTEE that the income will keep pace with inflation. The Life Insurance contract that I have been refering to does EXACTLY the same thing. Keep in mind that it may be possible in BOTH cases to use a "VARIABLE" product which would FLUCTUATE with the MARKET, if that is your concern.

As to the RISK that you refer to, the contract would be GUARRANTEED by the company (AND OR IT'S SUCCESSOR'S). To my knowledge, and I have been in the industry since April of 1963, there has NEVER been a time in which a Life Insurance company has gone "belly-up", where the INSURED withstood a LOSS of the GUARANTEE of the contract. In every case that I am aware of, another company (or companies) has taken over the book of business, and completed the contracts.

Cal Lester CLU

Thanks for the clarification Cal. If I understand you correctly you are talking about a life insurance policy that would pay a fixed amount monthly (or annually) to my wife starting on my death and continuing until her death. The amount would remain the same throughout the pay-out period with no inflation adjustment. If that is correct then it is exactly what I am looking for. Can you give me the correct technical description of this type of policy so I know what to ask for when I start shopping?

Weren't there some where payments were delayed while the details of who and what should be paid at the time of insolvency were being worked out? Even if everyone was eventually paid in full, going without payments during retirement may be a significant hardship if no other income is available.

Frank

The Policy is ANY form of Whole Life, or it can be done equally well with a Universal Life Policy. The "program" or "concept" is called "Pension Max". Almost any Professional Life Insurance Agent can prepare an illustration for you. Or if you prefer, you can contact any company that you currently have Life Insurance with, and they can do it for you.

They determine the Face Amount that would be required to produce the desired income, and deduct that amount from the "Life Income" amount that YOU could receive.

Cal Lester CLU

The first part of the above may actually be correct, HOWEVER it is my understanding that it DID NOT EFFECT CONTRACTS UNDER DEATH CLAIM PAYOUT (except in the case where exaggerated interest projections were made. in those, the GUARANTEED interest rate was paid).

Cal Lester CLU

If there is no adjustment for inflation, then you are restricting the amount available to anyone who is depending on the payment for living expenses. You seem to be forgetting that inflation erodes purchasing power. In fact, if your pension doesn't have an inflation clause, then by the year 2020, your pension benefit may also be inadequate. Wouldn't it be better to be looking at an insurance policy that pays a lump sum so that the beneficiary could invest according to one's needs? If you're afraid that your wife would be unable to do this, you have a few years for her to learn. (If she's smart enough to have stayed married to you all these years, I'm sure she's smart enough to learn a little about investing.)

Elizabeth Richardson

What you allude to is the reason that I included in my prior posts that the Life Insurance Contract "could" be either Interest Sensitive OR Market Sensitive. You seem to have taken the position that a bereaved person would/could make investment descisions on their own. Either of the above mentioned contracts could eliminate and or reduce that NEED to make descisions. Cal Lester CLU

Actually, what I was alluding to is that a person could learn about investing and have a plan in place prior to the implementation. Why do people wait?

Elizabeth Richardson

No. What I am trying to do is mimic the behavior of the pension that the insurance would replace and the pension has no inflation adjustment.