A well-chosen policy can protect your pension while you work.
It’s great to work because you love what you do, but most of us work because we’re taking care of ourselves and our loved ones. A pension is a wonderful way to look after yourself and the people who matter once you’ve retired.
But however generous your pension plan, some people consider how to maximize its benefits — and to protect the value you’ve already put into it — by looking to a term life insurance plan.
So what is term life insurance?
Put as simply as possible, it’s a kind of life insurance that only guarantees coverage for a certain period of time. It’s sometimes called “pure life insurance” because they do nothing other than provide a guaranteed benefit in the case of the policy-holder’s death — there’s no savings component or other investment potential that you might find with a whole life insurance policy or other forms of insurance.
Because of that simplicity and limited span of coverage, a term life policy generally costs less than other forms of life insurance. But in certain circumstances, the support a policy like this offers can be invaluable.
How can term life help me?
Consider this thought experiment: A 52-year-old teacher, Hiram P. O’ Thetical, is working diligently and contributing to a New York State Teachers' Retirement System (NYSTRS) pension. Retirement is at least 10 years in the future, and Hiram’s family is counting on spending their golden years together supported by that well-deserved pension. But tragically, Hiram passes away without warning.
Instead of paying out for the two to three decades of Hiram’s retirement, the NYSTRS pension provides the O’ Thetical family no more than three years of his salary.
If Hiram was making a nice, round $70,000 a year, three times his annual salary equals $210,000. That’s a healthy sum … but short of the pension’s value. The life expectancy for the average American is over 78 yrs. This could mean 20-30 years of pension payments you would be giving up; equaling hundreds of thousands of future dollars lost for your spouse or loved ones.
Making up that difference is where a decent term life insurance policy comes in.
By getting $1 million in coverage for a 10-year term, the O’ Thetical family can rely on the same regular financial support as Hiram’s pension would provide once he retires at age 62.
A $1,000,000 policy with a 10-year term will probably cost between $70 and $155 per month. (The monthly premiums are calculated based on gender, tobacco use, and a few other variables.)
Even splitting the difference with a $500,000 coverage can offer significant comfort, at a cost of around $50 a month.
If you have a spouse, dependent, or some other kind of beneficiary who relies on you financially, a term life policy makes good sense, because it provides coverage from now until you’re able to retire.
Once you’re at retirement age, you can choose a pension option with a built-in survivor option built-in. But until then, you’re mostly on your own.
A term life policy takes care of those beneficiaries until the retirement pension really kicks in. Even more reassuring, the benefits paid out by a term life policy are tax free to beneficiaries.
If you’d like to learn more about the protection a term life policy can provide, CONTACT US to schedule a call with an advisor directly.
The Lincoln Investment Companies nor any of its representatives is affiliated with the New York State Teachers’ Retirement System (NYSTRS); and NYSTRS does not sponsor, authorize or endorse the retirement educational services described in this or other communications of The Lincoln Investment Companies.