Pension Maximization Using Life Insurance

Are you retiring soon and work for a company which provides you with a pension plan? Then, you have a very important pension option decision to make before you sail off into the sunset. Should you select a joint-life pension, single-life pension, or use a pension maximization strategy often called “pension life insurance”.

With all the variables involved, it highly recommended that you work with a financial planner to determine the best pension option for your family. At Affordable Life USA, we work extensively with retirees and welcome the opportunity to assist you with your decision.

We also have a “pension maximization calculator”, which will provide you with a comparative analysis of each payout option based on your specific pension plan.

First and foremost, it is important to first gain a general understanding of the various pension payout options available to you.

Pension Payment Options

If you participate in a traditional pension plan (defined benefit plan) with your employer, you will receive monthly benefits from the plan after you retire. These benefits are generally based on your age at retirement, as well as your years of service and your average earnings with the company.

Retirees can select from one of three Pension Payment options:

  1. Take a reduced payout in exchange for a single lump sum payout
  2. Elect to receive a full pension over your entire lifetime with no survivorship benefit. With a single-life pension, payments last for your lifetime and cease upon your death. So, why would you choose a single-life payout knowing that payments will stop at your death? One reason is that the single-life annuity pays a larger monthly benefit than the joint and survivor payout. This is because the payments are designed to last for a smaller number of years of one life compared to two people.
  3. Elect to receive a reduced benefit which includes a spousal benefit, so when you die, your spouse will receive the pension income for their lifetime.The survivor’s benefit guarantees that retirement income will continue even if the retiree dies first. So, in order to protect a spouse against a loss of income that would occur if the retiree died first, the pension is often arranged so that payments continue for the longer of the two lives. Thus, the spouse continues to receive a pension income, even if he or she outlives the retiring worker.
  • TIP: Do you need help deciding which pension payout option is best for you? You can use our pension payout calculator to evaluate a lump sum, compared to monthly payments over for either single pay or joint life options. Then, we will use your actual data with a comprehensive pension maximization worksheet.

But the spousal benefit comes at a significant cost!

If the pension is taken in a “single life expectancy,” the monthly income will likely be hundreds of dollars more than if the pension is distributed through “joint life expectancy”.  A joint life pension will usually pay out over a longer period of time than a single life pension. This is why the monthly income is significantly reduced.

So, the decision to reduce one’s monthly income, in order to protect a surviving spouse, is actually similar to purchasing an expensive life insurance policy. The decision to select a joint life pension should always be measured against the possibility of actually buying a pension life insurance policy, so that a significant cash benefit might be paid to the spouse, instead of a continued retirement pension.

This strategy is commonly referred to as pension max, pension maximization using life insurance, and pension life insurance.

pension maximization calculator

What is Pension Maximization?

The pension maximization strategy using life insurance is often utilized by married couples to increase their net retirement income while still protecting the surviving spouse’s income in the event the retiree dies first.

First, the retiree elects a single life pension instead of one with a survivor benefit for their spouse.

Then, the retiree purchases pension life insurance to allow the surviving spouse to replace the pension income in the event that the pension recipient dies first.

What does pension max life insurance cost?


To easily compare life insurance rates, click “Get Quote” on our pension life insurance calculator below:

pension life insurance ratesPension Maximization Advantages:

  •  Higher retirement income due to single life expectancy pension: Retirees can use in a single-life pension with pension life insurance to dramatically increase their income during their retirement years.
  •  Protection of surviving spouse with a life insurance policy on the retiree: Retirees concerned about providing for their spouse can still choose a single-life payout, but also purchase a life insurance policy on the retiree’s life to provide for their spouse.
  • A pension life insurance benefit is paid as a lump sum and is tax-free, while pension income is typically paid out monthly and subject to income tax.
  • Flexibility to name new beneficiaries if spouse dies first: If the retiree’s spouse does die first, you can then either discontinue the insurance policy or name a new beneficiary and continue to pay the premiums.
  •  Unused life insurance proceeds: Another advantage of selecting the single-life option with the purchase of a life insurance policy is that there may be assets left over for your children. If you and your spouse select a joint and survivor annuity, no benefits from your pension plan will be paid to your children when the surviving spouse finally dies.

Should you choose Pension Life Insurance?

A pension maximization strategy should always be compared to the survivor benefit based on your specific pension plan and your unique circumstances.

Here are few questions to ask yourself to help you select the best pension option:

Determine the difference between the two payout options:

  • A single-life pension always pays larger monthly retirement benefits than a joint and survivor benefit.
  • If your single-life option pays significantly more than the joint and survivor option, then electing the single-life payout along with the purchase of a life insurance policy may be a viable strategy. Why? The larger the monthly benefits under the single-life option, the more income you will have to pay the premiums for the life insurance policy.
  • However, if the difference between the two payout options is very small, it may be better to elect the joint and survivor pension. Why? Because the single-life option will not provide enough income to pay the insurance premiums.

Can you qualify and how much will the life insurance cost?

  • If you are not insurable because of your health, then electing the single-life option along with the purchase of a life insurance policy is not a prudent option.
  • If you are decent health, determine how much pension life insurance coverage would be needed to compensate your spouse for the loss of your pension income.
  • Then look at the cost for that amount of coverage, and compare it with your monthly income from the single-life option.
  • This will help you decide if using the pension max with life insurance makes financial sense for you.

Does your plan have a cost-of-living adjustment?

  • Some pension plans have a cost-of-living adjustment (COLA) feature that allows the monthly benefits to be periodically increased to keep pace with the rate of inflation.
  • If your pension contains this feature, you will need to consider a larger insurance policy to protect your surviving spouse from the loss of your pension income if you elect the single-life payout.
  • This is because your surviving spouse would receive an ever increasing amount of annual income over their lifetime if you elected the joint and survivor option with a COLA feature.
  • Thus, the presence of a COLA clause in your pension plan might be a factor against using life insurance to maximize your pension.

How is the health of your spouse?

  • If your spouse is in poor health or has a short life expectancy, then selecting the single life payout along with the purchase of a life insurance policy often makes more sense than selecting the joint and survivor option.
  • You can always stop paying the premium on the life insurance policy if your spouse dies before you, increasing  your monthly income.

What is the age difference between you and your spouse?

  • If there is a large difference between your age and your spouse’s age, then opting for the single-life pension along with the purchase of a life insurance policy makes logical sense because the difference in benefits between the single-life  and the joint and survivor payout will typically be greater.
  • If your spouse is considerably younger than you, their longer life expectancy will be factored into the calculation of the joint and survivor benefits, resulting in smaller monthly payments. This could leave you and/or your spouse without sufficient retirement income using a joint and survivor option.
  • But, if you select a single-life pension that ends because you die soon after retiring, your much-younger spouse may have to survive financially without the benefit of your pension for a long period of time.

What is the Gender of the Retiree?

  • If the retiree is female, then selecting the single-life annuity along with the purchase of a pension life insurance policy may make more sense than selecting the joint and survivor annuity. This is because women outlive men of the same age. You will benefit from the higher monthly payout under the single-life pension while you are alive, and the life insurance coverage will protect your spouse in the event that you die first. By contrast, if you select the joint and survivor payout and your spouse dies first, you may be stuck with a smaller payout for the rest of your life, unless the plan has a “pop-up” provision.

Does your plan contain a “Pop-up” provision?

  • Some pension plans offer their retirees a “pop-up” provision specifying that if you initially select a joint and survivor payout and the spouse dies first, they can then retroactively select a single-life annuity payout.  If your pension plan offers this option, you may not want to select a single-life annuity with the purchase of a life insurance policy.

Pension Life Insurance

Types Pension Life Insurance Policies

What types of policies are available to cover my pension?

Term Life Insurance

A term life insurance policy offers guaranteed death benefits and level premiums for an initial period such as 10, 15, 20, or even 30 years. Either a  20-year term or 30 year term life insurance plan are the best term plans for protecting your pension.

Permanent Life Insurance

Universal Life Insurance is a type of permanent policy where the excess of premium payments above the current cost of insurance are credited to the cash value of the policy. Universal life can also be structured at competitive price point with no cash value with guaranteed coverage to last a lifetime. These polices are ideal for couples seeking a longer duration pension max strategy.

How do I apply for Pension Max Life Insurance?

Please remember that finding a great price on a life insurance policy takes time. If you are considering pension life insurance in place of your spousal benefit, it helps to start shopping for coverage 3-6 months to prior to your retirement date.

Otherwise, you might be forced to accept the survivorhip option in order to provide a guaranteed income to your spouse.

Most pension life insurance policies are medically underwritten. So, it is important check into whether you can qualify for coverage before selecting a pension option.

Here are the typical steps we take to secure coverage for you:

  • First, your general medical history is evaluated by our agents to determine which company may be best suited for your particular medical history.
  • Next, your life insurance needs are discussed to find an appropriate plan and amount of insurance to cover your pension.
  • Then, most insurance companies will also require you to do a brief insurance examination.
  • Your medical history and exam are submitted to several highly rated companies to determine which carrier would be willing to offer coverage at the most competitive rate class.

This application process allows us to provide you with accurate life insurance comparisons based on how your medical history fits within each company’s underwriting guidelines.

If would like our pension maximization calculator to perform a comparative analysis of each pension option based on your actual payout amounts, we can provide you with complimentary pension maximization worksheet.

For over 25 years, Affordable Life USA has helped many retiring employees make sound pension max decisions. If you would like to discuss your situation in greater detail, please do not hesitate to call us at 1-877-249-1358.

How much does pension life insurance cost?


To easily compare life insurance rates, click “Get Quote” on our pension life insurance calculator below:

pension life insurance Remember, the actual cost of your life insurance comparison will be based on your age, heath, and the amount of coverage you need. If you need help determining the best option for your family, please do not hesitate to call us at 1-877-249-1358.

Introducing Eric Van Haaften:

Eric Van Haaften

Affordable Life USA is a nationally licensed and independently operated life insurance agency. The agency was started by Eric Van Haaften, over 25 years ago, from our home office located in Grand Rapids, Michigan. Please feel free to email him at:, or call us at 1-877-249-1358.