# Term Life vs Joint&Survivor Pension



## fraser (May 15, 2010)

Does anyone have any general comments about advantages/disadvantages taking a normal form DB pension and then purchasing term insurance (guaranteed premiums) as opposed to a taking a reduced joint and survivor form of pension. 

I realize that the term insurance route implies premium paid with after tax income.


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## OptsyEagle (Nov 29, 2009)

You seem to have it figured out. I assume you are talking about a permanent term policy (as opposed to one that expires when you are 75,80 or 85).

Just compare the premiums you will need to pay and compare them to the after-tax loss of monthly income you will experience, if you take the survivor options.

Things to keep in mind are percentage of pension that the survivor gets (not always 100% of what you get), and the cost of an annuity to replace that amount. It will get muddied by the fact that the annuity purchased will not be as taxable as the pension would be since it can be prescribed and therefore your spouse will retain more income or put another way, will not need as much to replace the very taxable pension income

You can get some rough annuity prices here.

http://www.globeinvestor.com/servlet/Page/document/v5/data/rates?pageType=annuity

Keep in mind that it is sometimes difficult to compete with the pension because, 1) their numbers are the true life insurance cost without the fees to the agent and profit to the company. There is no scam here, just actuarial facts, the same ones the life insurance company will use, except they have agent commissions and company profits that you will be forced to pay.
2) they get the benefit of the percentage of times the survivor dies before the pensioner, reducing their costs,
and
3) they get the benefit of pricing things in what the industry would call "declining term" and you will be forced to buy straight term (most likely).
What that means is that, as your spouse ages the cost of the future payments gets cheaper and cheaper and therefore their costs are less. They use an average cost of the average life expectancy of all pensioners and you will probably be forced to price the term as if you die one day after you start collecting the pension. This being the most expensive for replacing the income because it pays for the longest timeframe.

So all in all, good luck finding something that numerically is cheaper. You will most likely find out that the survivorship option is the cheapest option, unless your spouse is at least 10 years older then you, or more.

Good luck. Hope some of the above makes sense.


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## MoneyGal (Apr 24, 2009)

What he said. Any additional cash you get (based on taking a pension with no survivor's benefit) is likely to be severely depleted by the premiums on the life insurance. 

A Canadian couple (male and female), retiring in good health at age 65, has about a 60% chance that at least one will still be alive at age 90.


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