Maximize Your Pension Using Life Insurance
Life insurance is effective for more than the traditional use, which is to provide a cushion of liquidity for your loved ones when you’re no longer around.
Alternative life-insurance strategies can help achieve a number of goals, including replacing pension income.
Consider the case of a couple who plan to live their retirement on one spouse’s pension, not taking into account that when this spouse dies the pension will stop, and the remaining partner is left with little to live on.
In this case, the couple can purchase life insurance that will provide a similar level of income for the survivor after his or her partner’s death. The death of a spouse is traumatic enough for the survivor without the added burden of financial worries.
This is such an effective strategy, you may wish to make retirement decisions – such as when to take Social Security benefits – with a life insurance policy in mind; knowing that both spouses will receive an insurance payout upon the other’s death allows the couple to make decisions that maximize their benefits.
This life insurance strategy is not just for the wealthy.
To pay for their insurance premiums, many average couples are using reverse mortgages – loans available to homeowners that allow them to access a portion of their home equity; couples who take out reverse mortgages can use a portion of this money to pay for a life insurance policy.
It’s a win-win. The couple has the remainder of the money to use in their lifetime, and in the event of one spouse’s death, the survivor can pay off the reverse mortgage and still hold on to the family home.
The price of an insurance premium is small compared to the peace of mind it can give both partners.
But ensure you consult your advisor to be certain this is the right strategy for you.
Don’t Tempt Fate Waiting for the ACA to Cover You
Some people are tempted to tempt fate by going without health insurance coverage until they get sick.
The provision in the Affordable Care Act (ACA) covering pre-existing conditions such as cancer and diabetes comes into effect on January 1, 2014. At this time, no one can be refused coverage or charged extra because of a pre-existing condition.
As a result, many people go without health insurance now, hoping they’ll stay well until 2014. And this decision may have devastating consequences.
For example, in the event of a severe accident, you may not be able to get coverage in place until after you’ve incurred thousands of dollars of medical expenses; your 2014 plan won’t help you with 2013 accidents.
Furthermore, the IRS assesses a penalty on anyone who does not have medical coverage in place in 2014. For the first year, that penalty is only $95 per adult and $47.50 per child, up to $285 for a family, or 1 percent of family income, whichever is greater.