Using Life Insurance to Maximize Your Pension Benefits

When you think of life insurance you often think of something that you ‘should’ have and you may not have fully taken part of this level of peace of mind.  Life insurance can help you as you approach retirement and prepare your estate; it will allow you to maximize your defined benefit qualified pension plan.  While some employers are moving away from using pensions, many people who are approaching retirement age may still be contributing to a pension plan.

This method of using life insurance while coupled with a pension plan is known as pension maximization. This strategy of maximizing a pension payout is specifically for those who are married. Pension maximization allows the holder of the pension plan to maximize pension payouts while gaining the death benefit protection for their spouse.

Steps for taking advantage of Pension Maximization

  1. Read the parameters of the pension plan and discover what it includes. Does it include health insurance or other similar benefits?

  2. Are you healthy enough to take out a life insurance policy?

  3. Make the decision that you will use the “Life Only Benefit” payout option.

  4. Take out a life insurance policy to supplement the “Life Only Benefit” payout before the time of retirement.

  5. List your spouse as beneficiary of the life insurance plan.

Pension Maximization strategy will allow the holder of the pension plan control, protection, and peace of mind that their spouse will be secure after their passing.  Upon the passing of the plan holder the spouse will receive death benefit from the life insurance policy, which is generally income tax-free but will not receive any more funds from the pension plan.