By Pastor Otis Manning
My first article was “Preparing for Retirement” which talked about the things that need to be in place when you are Preparing for Retirement such as: Obtaining Medicare, A Medicare Supplement, Social Security, Using Annuities
My second article talked about “How to Increase Your Social Security Benefits”. There are many techniques on how to increase your Social Security Benefits and I listed two of those techniques.
In this article we will discuss “Income Replacement”.
In the case of a retired married couple, both receiving Social Security and maybe a Pension or income from Investments, when one spouse dies, one Social Security check will no longer be available to the surviving spouse. The surviving spouse can obtain the larger of the two Social Security checks, however they can only have One Check. So, there is a loss of income.
How does the surviving spouse replace the Lost Income?
If both spouses have a Life Insurance Policy in place that will provide funds to the surviving spouse, those funds will come in a lump sum and that lump sum can be converted into an Annuity which can provide for a Guaranteed Lifetime Income, which can replace the income that was lost when one spouse dies.
Here is how this may look in round numbers.
Lets say a married couple has a Social Security income of $3000 per month. Each spouse receives $1500 per month. They both have a Life Insurance policy on each other for $300,000. Upon the death of one spouse, the surviving spouse receives a death benefit of $300,000 and those funds are used to obtain an Annuity.
Let’s say the Annuity has a payout factor of 6%, so that means the payout on the Annuity will be $18,000 per year which is $1500 per month. This $1500 per month income is Guaranteed Lifetime Income and will continue even after the Annuity is depleted. It keeps on paying after a zero balance is in the Annuity for the rest of your lifetime!
This $1500 per month Annuity Income replaces the lost Social Security Check and
helps the surviving spouse to have the same $3000 per month income they had before.
There are many types of Life Insurance policies that could provide this “Income Replacement”. There are basically three types of Life Insurance and they are:
1)Term; 2)Whole Life; and 3)Universal Life.
The differences are as follows:
Term Life Insurance will pay for a certain “Term” and that Term could be 10, 20 or 30 years or more. Term is usually the cheapest. The problem with Term is that if you die before the Term expires there is no benefit. Some Term policies allow you to convert it to a Whole Life policy, however the cost is usually many times what the Term premium was and in most cases is not affordable.
Whole Life Insurance will pay for your “Whole Life”. It is permanent insurance. Whole is usually the most expensive. In addition, to the death benefit, there is also a “Cash Value” component like a Saving Account. This Cash Value grows and pays you a compound interest and some even pay dividends. The Cash Value usually has a “Guaranteed Interest Rate”.
Universal Life Insurance, also known as Individual Universal Life (IUL), is similar to Whole Life. The difference is the Cash Value is tied to an Index and the Interest Rate Growth “IS NOT” Guaranteed, but goes up and down based upon the performance of the Index that it is tied to.
All three can be used for “Income Replacement”, however, all three usually require some type of medical underwriting before they will be issued.
If you can qualify, they provide an excellent way to provide for “Income Replacement” and security, enabling the surviving spouse to maintain their standard of living.
If “income Replacement” is a tool you would like to explore it is highly recommended that you contact a Financial Services Professional that can advise you in this area.
For additional information on this article you may contact: President Otis Manning, Retirement Solutions, 9212 E. Montgomery Avenue, Suite 401-4, Spokane Valley, WA 99206, email:email@example.com.
Disclaimer: This article is not intended to give legal, tax or investment advice. You must consult your own adviser in order to determine what is best for your specific situation.