Life Insurance for Pension Maximization

Life Insurance for Pension Maximization
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    Life Insurance for Pension Maximization: Life insurance exists for the primary purpose of making sure your loved ones are protected when you die. Typically, this just means replacing your lost income so that they can still maintain their lifestyle.

    Life Insurance for Pension Maximization

    But what happens when you retire and are no longer making an income? 

    What if you are instead receiving pension checks? When you die, would this potentially leave your family in a difficult financial situation?

    What is Pension Maximization, and Why Should You Consider It?

    Pension maximization is a life insurance strategy that ensures your benefits will be replaced once you are gone. 

    This is important, because retirees usually must choose one of three options when it comes to their pensions:

    1. Joint-100% Survivor Option

    You receive a much lower pension payout during your lifetime so that your spouse will continue to receive the same low amount after you die. Either way, nobody gets a full payout.

    2. Joint-50% Survivor Option

    You receive a slightly lower pension payout during your lifetime, and your spouse will receive 50% of that once you are gone.

    3. Life Only Option

    You receive full pension payout during your lifetime, but your surviving spouse receives nothing after your death.

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    As you can see, not one of these options makes it possible for full benefits to be received by both parties before and after your death. 

    How Pension Maximization Helps

    With a pension maximization strategy, however, this is possible. In this setup you would elect the “Life Only” option with no survivor benefits as seen above, but instead of your spouse receiving nothing after you die, the life insurance payout would replace your lost pension.

    It’s an “everybody wins” type of scenario.

    How Pension Maximization is Enacted

    Obviously, you will need to purchase the right life insurance policy in order to make this work. This means that you will need to be insurable. 

    Your insurance policy will have to be sufficient enough to not only make up for the amount of your pension that will be lost when you pass away, but the length of the policy itself will also have to last the rest of your life.

    Because a regular term life policy could lapse before you pass away, consider getting a Guaranteed Universal Life policy.

    This is a little more expensive than regular term life insurance, but with it you can get guaranteed coverage periods up to age 121. As long as you pay your premiums, your policy will be in effect during this period regardless of changes in your health.

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    Aside from selecting the right insurance policy, keep in mind that you will then need to waive the Joint and Survivor income option upon retirement, so that you can receive your maximum pension payments every month.


    Life insurance premiums vary greatly from person to person, since they depend on age, health condition, gender, financial situation, etc. The best life insurance company for your situation can also make a huge difference in your rate.

    But to give you at least an idea of the cost, let’s say you are a 65-year-old male who is looking to retire in the next five years. 

    You decide to apply for a $100,000 Guaranteed Universal Life policy, to last until age 121. You end up paying around $178 a month, but this way you are guaranteeing coverage for the rest of your life.

    For comparison, if you are that same 65-year-old male but decided to by a term life policy for, say, 15 years, you would end up paying about a $100 less per month. However, you could very well live longer than another 15 years, and if that happens you would need to once again re-evaluate your options. The longer you wait, the fewer options you will have.

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    Bottom Line

    The best age to start setting up a pension maximization strategy is actually 5 to 10 years before retirement.

    If you are interested in pension maximization and would like to learn more about your options, feel free to give us a call. You can also start comparing life insurance quotes today using our customized online form.    

    Michael Quinn

    Michael Quinn

    Michael is a licensed life insurance agent, expert & owner of Life Insurance Blog. LIB has helped thousands of shoppers understand life insurance and secure affordable coverage.

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