Pension - survivor benefit or extra Insurance?

Question

With a pension, you usually have the option of taking a slighty reduced amount to guarantee payments of about 50-60% to your spouse after your death. An alternative is to take the full amount and then take out a term policy that would 'cover' your spouse after you are gone. What do you think is the better choice?

StephenWeinstein · Accepted Answer

The term policy only covers the spouse if you die during the term.  If you outlive the term of the policy, but die before your spouse, then your spouse is not covered.

If the policy is guaranteed renewable, then I think that it would depend on (1) whether you qualified for the term life insurance policy, and (2) how long after your death you expect your spouse to live (is the guaranteed pension payment to your spouse worth as times as much as the 350k-500k term life insurance policy?).

Anonymous · Answer

There's no way to know without running the numbers.

You need to weigh the cost of term life insurance (and at retirement age, I think whole life is a better choice - if you outlive the term, and can't renew it, your spouse is in deep trouble if you die right after the term expires) vs. the benefit amount your spouse would get, if you die, AND, look at the longevity in the family and your individual health situation.

Me, I'd tend to recommend the spousal pension benefit - it's probably going to make more monetary sense.  On the other hand, if the company goes bankrupt, you've got NO pension for either of you! 

And who the heck gets a pension well in excess of $10,000 a month?  If $2,000 is a 'slight reduction', man, you must work for the government!

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Pension - survivor benefit or extra Insurance?

2 Answers