Using Life Insurance for Pension Maximization
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The typical defined benefit pension plan may pose several challenges for your clients—mostly, a potentially lower monthly income during retirement, as well as a lack of flexibility to change the beneficiary or the election option. The pension maximization strategy can help your clients gain death benefit protection while making the most out of a pension plan.
- Needs death benefit protection and considering retirement
- Married, age 50 to 65
- Either spouse has a defined benefit pension plan
- Seeking to help maximize monthly income
- Prepared for the potential impact caused by loss of benefits for the surviving spouse that may be linked to the Joint Life option
- The participant is ideally several years away from retirement, which may lower premium costs based on age and health.
- Be sure the life insurance policy is in force before the client declines the Joint and Survivor option.
- When calculating the needed death benefit, consider a highly conservative approach (preparing for a scenario in which the plan participant dies soon after retiring).
- With some pension plans, selecting the Life Only option may disqualify the plan participant's spouse from medical or other benefits that may be provided with the Joint and Survivor option.
Sample Case One: Custom Guarantee® UL
Gary is 62 years old (Preferred Non-Tobacco), and his wife, Mary, is age 60. Gary is a longtime city official, and with his pension plan, he is given a choice of $5,000 per month with the Life Only option or $3,500 with the Joint and Survivor option. With three grown children and a desire to travel, Gary is seeking to make the most of his pension plan. The couple reviews their financial situation and retirement needs with their financial professional. After determining their need for death benefit protection, they consider the pension maximization strategy using life insurance. Rather than taking the Joint and Survivor option, Gary can use life insurance and an annuity to cover Mary's income needs if he were to predecease her. He takes the Life Only option and uses some of the extra $1,500 per month to buy North American's Custom Guarantee Universal Life Insurance. At Mary's age, 60, it takes a death benefit of $753,000 to buy a lifetime single-premium immediate annuity (SPIA) of $3,500 per month. At age 70, that income need drops to $591,000, and at age 80, it drops to $400,000. Using Custom Guarantee, Gary gains a guaranteed death benefit1 at a cost of $869.98 per month to generate the coverage. The difference of $630.02 per month is how much Gary is ahead every month using the pension maximization strategy!
Sample Case Two: Guarantee Builder IUL®
Guarantee Builder is an indexed universal life insurance product that offers long-term cash value growth potential along with the guaranteed death benefit1. Based on the case above, Guarantee Builder IUL is another option for Gary, but with the benefit of potential cash value growth. Again, with the Life Only option he can use some of the extra $1,500 per month to buy the policy. Gary initially spends $1,141 per month with that premium dropping to $548/month in year 11 to generate the death benefit coverage of $753,000 and also gets cash value accumulation potential projecting $29,815 in the 15th year. That's $359 per month savings for 10 years followed by $952 per month savings after that for Gary and an exit strategy in the form of projected cash value.
For help with your pension maximization cases, contact Sales Development at 800-800-3656 ext. 10411 or email firstname.lastname@example.org.
1. Subject to premium payment requirements.
Indexed universal life products are not an investment in the "market" or in the applicable index and are subject to all policy fees and charges normally associated with most universal life insurance.
For full product information, please refer to the current Builder IUL series marketing guide and the Custom Guarantee marketing guide.
The information presented is hypothetical and not intended to project or predict investment results.
Custom Guarantee is issued on policy form series LS170, Guarantee Builder IUL is issued on policy form series LS175; or state variations by North American Company for Life and Health Insurance, Administrative Office, Sioux Falls, SD 57193. Products, features, issue ages, endorsements or riders may not be available in all jurisdictions. Limitations or restrictions may apply.
FOR AGENT USE ONLY. NOT TO BE USED FOR CONSUMER SOLICITATION PURPOSES.