Joint & Survivor Pension versus Term Life

[bob boag]

Greetings

I hope to retire in mid-2011 at age 55. Among the many options for my pension distribution, the two I am considering are the closest I have to a lump sum payout: five year simple (60 monthly payments, unless I die first) or 5 year certain (i.e. if I croak my survivors get the balance of the payments).

The five year simple totals to $1.9MM. The five year certain totals to $1.87MM. i.e. it costs $30K to ensure that my survivors get all 60 payments.

I want the certainty that my wife & kids are covered. I would like to explore if I can get a better equivalent deal by taking the $1.9MM simple and protecting it with five years of term life insurance. Maybe five successive one-year policies, each successively smaller as I receive the pension payouts.

Is there anything wrong with such a scheme? Is there anywhere I can get sample quotes for such a policy without commiting my contact information, like you can with annuity quotes?

Thanks, bob

 

[chinaco]

You did not provide enough information.

If you could provide more detail about the type of pension and your circumstances and goals... it might help us to provide better ideas and considerations.

Typically Defined Benefit programs have a reduction for ER. Is this a Defined Contribution Plan or Profit Sharing?

One thing to consider is that taking a lump sum often means moving the money out of tax deferred status into taxable status. That amount of money divided by 5 will put you in a high tax bracket.

 

[dgoldenz]

There's no need to buy an annual renewable or 5-year policy in this scenario since the price will be the same or higher than a 10-year policy anyway. I don't know what your health looks like, but the lowest possible 10-year rate for someone age 54 on a $380k policy is $607.20/year. Five policies would be $3,036/year.

Of course, five policies means you pay five separate policy fees each year. Prudential is the only company I know of that will let you reduce the death benefit on your policy as many times as you want (most companies will only let you do it once or every few years). A 10-year policy with Prudential at best possible rates would be $3,068/year and then you'd only have to deal with one payment to one company and one set of underwriting rules. The best fit will be highly dependent on your health. You need the help of an independent agent, I wouldn't try to do this one yourself.

 

[kcowan]

But if you are gone, surely their costs will come down by $30k. The plan as presented is great. Go for it.

This reminds me of the joint survivorship plans. When you select one of those, you are insuring for the difference in life expectancy between the participating spouses. So it is like term insurance for 2-3 years out when you are 80.

 

[samclem]

If you can qualify for a policy like dgoldenz mentioned, just do that. I wouldn't mess around with five policies--just get a single five year level term policy, it's much cheaper than going with what you've been offered by your company. You could even get a 10 year policy and abandon it after 5 years and save 15K.

But, if you can't pass the underwriting for that, then maybe your company's $30K "fee" makes sense. Also, check with any organizations to which you belong, sometimes they offer cheap term insurance.

 

[dgoldenz]

If you can qualify for a policy like dgoldenz mentioned, just do that. I wouldn't mess around with five policies--just get a single five year level term policy, it's much cheaper than going with what you've been offered by your company. You could even get a 10 year policy and abandon it after 5 years and save 15K.

But, if you can't pass the underwriting for that, then maybe your company's $30K "fee" makes sense. Also, check with any organizations to which you belong, sometimes they offer cheap term insurance.

A five-year term policy would be more expensive than a 10-year, no reason to purchase the five-year IMO.