Pension with Survivor Benefit or Buy Life Insurance?

[skyking1]

I played with the numbers and it looks like opting for a 50% survivor pension benefit for my wife coupled with a small (300k) term life policy will work out great.

 

[youbet]

Two separate cases, one was my best friend's father's death. He bought the policy 20->25 yrs before he collapsed dead from a heart attack. The insurance company said they didn't have to pay as he died of a heart attack, so obviously he lied 20 years earlier when he signed up for the policy and said he had no heart issues...

There was no "incontestability period" associated with the policy?

 

[Sunset]

There was no "incontestability period" associated with the policy?

I have no idea, and it was a long time ago, so will never know.

I was told the story as it was unfolding by my best friend's mother (like an Aunt), and I was young and inexperienced so she was just venting her anger/anxiety/disappointment to us.

 

[pb4uski]

I was curious as to what "ignore the death of a person" meant so I skimmed the article. It doesn't mean they deny ("ignore") a legitimate claim submitted by a beneficiary. It means that they don't independently determine the living or dead status of an insured and then notify the beneficiary of the death and that they'll be receiving a check.

Frankly, this is the way I thought it always worked. For example, I assume that if I keep my policies a secret and therefore when I die no one submits a claim, the insurance company will not ferret this out in order to ensure they pay someone. Therefore I have my insurance policies carefully documented and DW (primary beneficiary) and DS (secondary beneficiary) have all the details to submit a claim as soon as they can obtain a death certificate. I've never for a minute assumed that when I die, even if no claim is submitted, the insurance company would move independently on their own to determine I was dead and then pay my beneficiary.

Yes, the way it always worked was that in order to obtain the death benefit then some survivor had to file a claim, it would be administered and then paid by check (or checkbook).

But at some point, I don't remember exactly when, it became known that some insurers that had issued both an annuity and life insurance on the same life were using the SS database to identify deaths so they could cease payments on the annuity but they were not simultaneously paying out death benefits because a death claim had not been submitted.... and in many cases they were even still collecting premiums that were on autopay.

It conceivably would have worked that way for me, my pension and life insurance are with the same company so if I died they could have conceivably ceased my pension benefit payments but until my survivors filed a death claim then the life policy would continue to autopay premiums.

I didn't have any issues with it... that's just the way it always was and people need to be responsible for their own finances. I think in many cases it was not intentional... just that insurers are big companies and the annuity left hand often doesn't know what the life insurance right hand is doing.

But "society" decided that it was wrong so now in addition to culling the databases for deaths to cease paying annuity benefits insurers have to do the same for life insurance death claims.

 

[Valid not Invalid]

CSRS pensions are no more. Today's hires have a very modest pension and the equivalent of an IRA.

Today’s federal hires still receive nice cola’d pensions under FERS, many into six figures.

The way I understood my options, my gov’t health insurance premiums had to be deducted from my federal pension. If I selected a pension which excluded survivor benefits to my spouse, if I died first, my pension would stop and there would be no funds to pay my family’s insurance premiums, an thus their health insurance (both wife and kids) would cease. Something to consider as well, especially if you fall under a federal pension.

 

[meleana]

Take the lump sum and invest it. Don’t hand your money over to an insurance company. Insurance is designed in the company’s favor- not yours.

 

[youbet]

Yes, the way it always worked was that in order to obtain the death benefit then some survivor had to file a claim, it would be administered and then paid by check (or checkbook)..........


But "society" decided that it was wrong so now in addition to culling the databases for deaths to cease paying annuity benefits insurers have to do the same for life insurance death claims.

Thanks for the explanation pb. I'm still giving the job of collecting my LI benefits a high priority for DW and/or DS when I croak and making sure they have everything they need....... short of the death certificate that is....... hopefully they have to wait a while for that!

Following the anniversary date of each policy, I receive a statement showing that the premium was paid out of dividends, that additional paid up insurance was purchased with the remaining dividends and what the total value (face + additional paid up) is. I use this as a reminder to call them and go over claiming requirements, their current claim to payment times, etc., and update any changes in my "when I croak" documents. Assuming DW will have these funds within a couple months (they promise less) allows me to keep more of my portfolio invested. Thinking there could be some kind of glitch in this gives me a headache so I'm glad to hear you think more optimistically than some others.

 

[youbet]

Take the lump sum and invest it. Don’t hand your money over to an insurance company. Insurance is designed in the company’s favor- not yours.

Not exactly.......

Insurance winds up being favorable for some and unfavorable for others on an individual basis. But, yes, as a group people pay more for insurance than they collect so the insurance company can pay expenses and make a profit.

 

[youbet]

I have no idea, and it was a long time ago, so will never know.

I was told the story as it was unfolding by my best friend's mother (like an Aunt), and I was young and inexperienced so she was just venting her anger/anxiety/disappointment to us.

OK, understood. I was just chuckling since at 74 I have several health issues that I didn't have when my policies were taken out on me as a child!

 

[Gumby]

Not exactly.......

Insurance winds up being favorable for some and unfavorable for others on an individual basis. But, yes, as a group people pay more for insurance than they collect so the insurance company can pay expenses and make a profit.

Yes, you wouldn't want to be an insurer stuck paying a life annuity to Jeanne Calment. https://en.wikipedia.org/wiki/Jeanne_Calment

 

[youbet]

Yes, you wouldn't want to be an insurer stuck paying a life annuity to Jeanne Calment. https://en.wikipedia.org/wiki/Jeanne_Calment

Wow! With an inflation rider, she could have taken down an insurance company single handedly!

 

[Koolau]

We decided on a lower survivor benefit/larger pension for me because we needed the cash flow to get to SS. Never considered adding insurance as I figured my much larger SS survivor benefit would handle her needs when the time came (I already had insurance as well.) YMMV

 

[trueson1]

I look at life insurance simply as coverage for lost income that my family is counting on should I die early. If I am retired, there is no income to replace. That said, I would turn to other means to deal with this issue.

 

[MarieIG]

. . .

My goal in all of this was to ensure that household income would not change when one of us dies. It will be hard enough to handle the loss of our spouse. We won't want to worry about a sudden loss of income at the same time. In my view, the goal is not to have the maximum amount of money, just to have enough money and some peace of mind.

. . .

This.

Term policies lapse - often when the survivor is older and in most need of the income. DH took the 100% joint and survivor to give me a sense of security. I am grateful that he cared enough to do so. (I have the shorter life expectancy due to health issues, but even a perfectly healthy spouse can be involved in a tragic accident.) If I die first, he gets a pop up, but he didn't realized that when we were discussing the options (I am the one who reads the small print). He will also be able to claim under my SS record and let his grow, which I instructed him that he is to do. I have a term life insurance policy on me through my job, but it is tied into my earned income, which I will no longer have upon retirement. Otherwise, I have been "uninsurable" for years.

We have a small term on DH which we will probably let lapse when I turn 65, at which point I will be eligible for Medicare and trigger a small (100% joint and survivor annunity, which until that time, has a life insurance rider on me). So, there will be two income streams, as well as the retirement accounts and taxable investments/savings. I would also assess my SS options.

 

[Luvtoride]

I look at life insurance simply as coverage for lost income that my family is counting on should I die early. If I am retired, there is no income to replace. That said, I would turn to other means to deal with this issue.

True, if there is a pension involved, of course there is LOST income to the couple if the pensioner dies and the pension doesn’t have survivor benefits. That’s the point of this whole discussion.
Sorry if I misunderstood your comment but there is little else that can be done once the election of a pension benefit payout is selected and life insurance is no longer an option to replace it.

 

[ivinsfan]

I look at life insurance simply as coverage for lost income that my family is counting on should I die early. If I am retired, there is no income to replace. That said, I would turn to other means to deal with this issue.

What other means are you referring too?

 

[pb4uski]

I look at life insurance simply as coverage for lost income that my family is counting on should I die early. If I am retired, there is no income to replace. That said, I would turn to other means to deal with this issue.

You are totally missing the point of the thread. The OP is trying to decide whether to select a single life option where his pension goes away if he dies or a joint life option where it would continue to be paid to his spouse if he dies... so in this case there is income to be replaced even though the OP is retired.

 

[jazz4cash]

If the federal government gets rid of lifetime subsidized health insurance, I would be less likely to stay with the government until retirement age.



Is is the most major factor.

I am starting to realize that once you qualify for Medicare FEHB is not nearly as good to retirees as active employees. You pay the same premium but you’re only getting secondary coverage and you have MC premium also. Probably still better than many alternatives, but still…

 

[mickeyd]

The question is do we take the higher monthly payout and buy a $1.5M Universal life policy

Why are you motivated to give this $ to the insurance company? In other words, whose idea was this?

 

[pb4uski]

Why are you motivated to give this $ to the insurance company? In other words, whose idea was this?

I don't think you understand the OP's issue and it is a common issue.

The OP can chose between a joint life pension benefit that pays $x per month
as long as either he or his spouse is alive or a single life pension benefit of $y per month but that would ceaase when he dies. The single life benefit is always higher than the joint life benefit.

immediateannuities.com suggests that a single life annuity is ~20% higher than a joint life annuity for a 65-yo couple. The play if one chose the higher benefit single life pension is to use some of that 20% extra to buy life insurance that would pay out at the death of the single life annuitant and provide enough money to provide money to the surviving spouse for the remainder of their life... effectively replicating the cash flows of the joint life annuity.

In some cases, depending on the cost of a term insurance ladder to fill the gap, you can end up with a higher monthly pension that if you chose the joint life benefit.

Do you get it now?

 

[Scuba]

I just checked my pension projections. It will be non-COLA regardless of which option I choose. Haven't started anything yet so still have options.

I compared:
- Option 1 - A single life annuity with a 10 year certain period - $212/mo more than option 2; $400/mo more than option 3
- Option 2 - 50% joint and survivor with 10 year certain period - $189/mo more than option 3
- Option 3 - 100% joint and survivor with a 10 year certain period

I haven't priced term life insurance yet so don't know how much that might cost, but my inclination looking at these numbers is to just go with 100% joint & survivor benefit. DH is not that financially oriented and I think if I passed early, he would appreciate having the guaranteed income. And even the maximum difference of $400/month extra income by taking the single life annuity is unlikely to make a significant difference to our lifestyle.

Am I missing anything here? Maybe the reason it isn't as impactful for me is the % difference is not anywhere near 20%.