This recent thread Should I buy Life Insurance and take more pension money
is an example of a common question.
"I have a pension which pays $X per year if I select the 'joint with 100% to survivor' option, but $20,000 per year if I select the 'joint with 50% to survivor option".
I'm not concerned about X right now, just the fact that the 50% option will pay $20,000 as long as the worker is alive, but only $10,000 to the surviving spouse if the worker dies first.
One idea is to take the 50% option, then buy insurance on the worker so that if the worker dies first, the spouse will have enough life insurance to provide $10,000 per year for the rest of his/her life.
People doing this typically buy level premium / level death benefit term, though sometimes they buy whole life.
It seems to me that the "right" insurance is an old-fashioned idea, Decreasing Term.
In this example, assuming the spouse is 65, the insurance would provide $350,000 if the worker died in the first year of the pension, $340,000 if he/she died in the second, ...., $10,000 if he/she died in the 35th year, and nothing after that.
So the insurance amount steps down to match the number of years that the survivor may need income. I'm conservatively assuming that the survivor can earn just enough return on the proceeds to stay even with inflation. A more optimistic assumption would allow a lower face amount.
The advantage is a lower premium. Just grabbing a sample mortality table and interest rate, I got decreasing term premiums at age 65 which were about half the premiums for level death benefit term (the half isn't a given, just a coincidence).
Decreasing term has fallen out of favor for normal family protection because term is generally so cheap, and because families expect that their annual income needs will go up over time due to inflation or raises.
In the non-COLA'd pension case, the annual income needed is a flat dollar amount. And, since issue ages can be rather high, the premiums aren't dirt cheap.
I'm not sure if anyone will actually have the patience to read all this. But, for the hardy few who get to this point, does the above make sense? Do you think buyers would be interested in such a product? or, is there some reason that you think most people would prefer the level death benefit?