Using Life Insurance to Maximize Your Pension Benefits

As you get closer to retirement you might try to simplify your life by simply getting rid of the things that you don’t need anymore.

You might stop contributing to your 401k plan. If your kids are grown up you might take a look at your household expenses and consider a less expensive home.

You might even consider canceling some of your policies. But whatever you do, don’t cancel your life insurance.

Your need for life insurance might seem like it’s dwindling because you no longer have a mortgage to worry about or unpaid student loans or children who rely upon your income.

But that doesn’t mean that the policy you already purchased isn’t going to do you any good in retirement.

This article outlines everything you need to know about how to maximize your pension benefits with life insurance! Before we dive into some of this awesome advice, let’s take a quick second to outline what we will cover in this article:

What you will learn in this article (click to go to section):

Why Do People Choose to Supplement Their Pension With Life Insurance?

The reason people choose to supplement their pension with life insurance varies depending on their existing situation. The main reasons that people use life insurance to supplement their pension plans are: 

  1. Provide additional income to their spouse in the event of their death
  2. Cover remaining debts in the event of their death
  3. Plan for long-term care needs
  4. Leave behind a legacy for their family

1. Provide Additional Income to Your Spouse

Using a life insurance policy to supplement your pension can give you can give your spouse financial protection for retirement in the event of your death. It might replace income that you currently receive from your pension benefits.

While your pension may be enough to manage your current standard of living currently, imagine if you passed away and your spouse had to handle your expenses without the help of your pension income.

Could they do it?

If the answer is no, supplemental life insurance for your pension plan may be something to consider.

If you pass, your surviving spouse will receive the highest of two benefits between your pension or Social Security. While the chances are, your pension will cover them, it is always a good idea to think in advance.

If you want to help provide your spouse with extra income or benefits, life insurance is a great way to supplement your existing pension plan.

When it comes to replacing pension income in the event of your death, you want to be sure that you understand the stipulations of your pension plan. Speaking with an independent life insurance agent can help you to fully understand your pension plan, future financial needs, and if supplementing your pension with life insurance is right for you and your spouse.

2. Cover Remaining Debts

After you pass away, the debts that you have don’t disappear.

That financial burden shifts to your spouse and remaining relatives. While the thought of death is not pleasant, it is something we all must face. On top of that, it is something that you want to begin to plan for as you get older and closer to retirement. 

While debts tend to decrease the closer you get to retirement, you may still have mortgages, car payments, credit card debt, or other existing debts that will become the burden of your spouse or family in the event of your debt.

On top of this, funeral and final expenses can be quite expensive – $7,000 to $10,000 on average in the United States. Again, not a typical thing you may think about, but it is something to keep in mind when looking to protect your family financially in the event of your death.

3. Plan for Long-Term Care Needs

With the life expectancy in the United States growing annually, pushing 80 years old for males and 84 years old for females, long-term care is something that might be worth thinking about financially, especially before you need it.

Most pension plans do not account for long-term care needs, so supplementing your pension for this is a very strongly recommended financial decision.

Long term care costs in the United States are very high, upwards of $6,000 per month on average. While your pension plan may be able to cover this for you, it may not also cover your spouse.

Additionally, your spouse may not be covered in the event of your death.

Many whole life insurance policies have policy riders, and some companies even offer long-term care policies that are strictly for people approaching retirement age who are looking to plan for their potential LTC needs.

Often times, the need for long-term care can leave families feeling hopeless.

Without enough money to help their aging family members or enough resources to give them the medical care they need in the comfort of their home. Supplementing your pension benefits with life insurance is a great way to ensure that the long-term care needs of you and your spouse are taken care of if the need arises.

4. Leave a Legacy for Your Family

Pensions are great for providing financial support for you and your spouse in retirement. However, they certainly fall short in the area of helping your family or leaving a legacy in the event of your death.

Supplementing your pension income with a life insurance policy is a great way to set up a way to leave a legacy for your family when you are gone.

Both whole life and term life insurance policies offer plenty of ways to leave something for your family in the event of your death. Often times, whole life policies are used to create estates and trusts in order to pass off ownership of property and assets to family members in the event of your death.

using life insurance as a supplement to pension benefits

What Are My Options For Supplementing My Pension Plan With Life Insurance?

Generally speaking, life insurance policies are broken into two main types:

Permanent Life Insurance

Permanent life insurance offers life insurance protection to policyholders for their entire life or until the maximum policy age (95, 101, or 121 depending on policy and company).


  • Coverage lasts your whole life
  • Can create trusts and estates with this type of coverage
  • Accumulates cash value over time


  • Far more expensive than term life insurance
  • May not be ideal for most people

Who permanent life insurance is best for:

These policies accumulate cash value over time, making them a great vehicle for supplementing pension income if you plan on building an estate or passing on a legacy to your family.

Term Life Insurance

Term life insurance offers life insurance in term installments of 10, 15, 20, 25, or 30 years usually.


  • Much cheaper than permanent life insurance
  • Covers you for a specific period of time, get the exact time coverage you need
  • Can be converted into a permanent life insurance policy
  • Can layer term policies to have coverage for each stage of your life


  • Term life insurance becomes more expensive as you get older
  • Without the conversion rider or additional coverage rider, your rates may be much higher when you need more

Who term life insurance is best for:

These policies are great for people only looking to supplement income for their spouse in the event of their death for a specific period of time (perhaps until they qualify for Medicare, Social Security, or until a 401k is available for cash out) or cover a mortgage that will be paid up in 10 years or so.

Best of both worlds?

Guaranteed Universal Life Insurance, also known as “no-lapse”. Is often referred to as a hybrid between term and permanent. It provides permanent coverage up to age 121, but without the expectation of cash accumulation and the high cost of most whole life insurance.

We’ve reviewed and ranked the top GUL companies here: Best Guaranteed Universal Life Insurance (GUL) Companies

Other Life Insurance Policies To Supplement Pension Plans With

While term and permanent are the two major types of life insurance you can supplement your pension benefits with, there are other choices.

Each has their own strengths and is geared towards a specific type of pension income supplementation.

Joint Life Insurance

Joint life insurance is also commonly known as spouse life insurance, survivorship life insurance, first-to-die, or second-to-die life insurance. This type of life insurance aims to provide the remaining spouse with a death benefit in the event of the death of their spouse.

It is important to note that first-to-die life insurance is the same as survivorship life insurance, where the remaining spouse is the beneficiary of the policy and receives the death benefit of the policy in the event of the policyholder’s death.

With a joint life insurance policy, in the event of your death, your spouse will be financially protected even in the absence of your pension benefits.

Second-to-die life insurance provides a death benefit to the beneficiary once the remaining spouse dies.

This is typically used to create and distribute estates and execute wills. These types of policies are a great way to supplement your pension benefits with life insurance if your goal is to leave a legacy for your family.


  • Protects you and your spouse with one policy
  • Available in both term and permanent policies
  • Great way to supplement your pension benefits with additional income for your spouse in the event of your death


  • Can be more expensive than term life insurance
  • If one of you is in poor health, you may be better off buying an individual policy for lower rates

Who joint life insurance is best for:

These types of life insurance policies are best for people who already have pension benefits, but their spouse is not covered under them. They are also great for people with pension benefits who want to ensure that their spouse can still live comfortably in the event of their death.

Burial Insurance

Burial insurance is designed to cover the final expenses of someone in the event of their death. Perhaps your pension provides your spouse with enough income to maintain their lifestyle, even in the event of your death.

Even in this case, your family will still have to cover the cost of a funeral, which can be very expensive as we briefly explained earlier. This type of insurance is also available for people who are in very poor health, who may not qualify for additional life insurance coverage for their pension plan.

Burial insurance plans are usually offered to people in small face amounts from $5,000 to $25,000, with a few companies offering coverage up to $100,000. Some guaranteed issue burial insurance coverage can be achieved in just under 24 hours with no health exam and no health-related questions.


  • No exam life insurance
  • Provides coverage to people who may be disqualified for traditional life insurance policies


  • This type of coverage is more expensive in terms of cost per thousand of coverage than traditional life insurance policies
  • Low maximum coverage amount

Who burial insurance is best for:

Burial insurance is best for people who need immediate no exam life insurance, people who are otherwise not eligible for life insurance coverage, and for people who do not have a lot of debt or need for high amounts of life insurance coverage in the event of their death.

Long-Term Life Insurance

Long-term life insurance is typically not offered as a standalone life insurance policy. However, there are a few companies such as Mutual of Omaha and Transamerica that offer long-term care policies that stand alone.

Otherwise, this type of life insurance coverage is typically offered as a policy rider to many term life and permanent life insurance policies. While many pension plans provide income after retirement that is adequate for a certain standard of living, those funds can quickly run out when dealing with long-term care.

LTC insurance offers supplemental life insurance coverage to people with pensions that can help them account for this increase in the cost of living easily and without putting a financial burden on their family.


  • Provides very specific life insurance coverage for long-term care which can be extremely expensive
  • Typically a policy rider that can be paid for with additional monthly premiums
  • A great way to ensure that you and your spouse have the long-term care coverage you may need


  • You may not need this coverage, but it is still great to have

Who long-term life insurance is best for:

This type of life insurance is best for people who are looking to use life insurance to supplement their pension benefits in retirement. People who plan on being around for a long time, and who think that one day they may have a need for long-term care.

This includes people who may have health conditions that are treatable but may require more and more care as time goes on such as Alzheimer’s, Parkinson’s, Arthritis, etc…

The Financial Advantages Of Using Life Insurance To Maximize Your Pension Plan

There are plenty of advantages to maximizing your pension with a life insurance policy. Generally speaking, most people use their life insurance coverage to maximize their pension benefits in the following ways:

  1. Tax-Deferred Cash Value Accumulation
  2. Pay for Premiums with Dividends
  3. Borrow Against Cash Value
  4. Convert Your Life Insurance Policy to an Annuity
  5. Tax Benefits for Estates and Trusts

1. Tax-Deferred Cash Value Accumulation

If you purchase a permanent life insurance policy, then you are building up cash value and doing so on a tax-deferred basis. The dividends that you earn are considered a return of the premiums you have paid which means they are not taxable unless the dividends go over the amount of premiums paid.

But the best part is you don’t have to pay taxes until your policy is surrendered. So don’t surrender just yet. When your remaining beneficiaries receive the benefits of your policy, they will receive these benefits tax-free as well! 

2. Pay for Premiums with Dividends

Permanent life insurance policies from Mutual Companies share profits with their policyholders. This comes in the form of dividends.

You can use your dividends to pay for your premiums. If you keep the policy in place, you can pay for the premiums and free up additional cash for your monthly cost of living.

Some permanent life insurance policies offer riders that take care of this for you, and that even allow you to pay your policy up in full early with your dividends, cash value, or extra cash you have lying around.

3. Borrow Against Cash Value Tax-Deferred

You can borrow against the cash value your policy accumulates or withdraw from it if you want. It might be beneficial for you to access that cash value during your retirement because it is tax-free for the moment.

You can borrow against it if you want and use that loan to cover whatever cost you have now and then repay the loan in the interest from the death benefit you have remaining after you pass away. Basically, it is like writing a loan to yourself.

This cash value that you can borrow is a great way to maximize your pension benefits, if you take some of the money you receive from our pension and pour it into a permanent life insurance policy, you will be able to gain cash value while supplementing your pension income for your spouse in the event of your death at the same time.

4. Convert Your Life Insurance Policy to an Annuity

Another option is to convert into a life annuity.

Many of the Life insurance carriers let you surrender the permanent product you have and use that cash to buy a life annuity product. Without major tax implications, this can be a very effective strategy.

Some term life insurance policies also allow you to convert into a permanent life insurance plan during the term.

5. Tax Benefits for Estates and Trusts

For years, permanent life insurance policies have been used as a vehicle for protecting assets that are transferred over to family members via trusts and estates form heavy taxation from the State and Federal governments.

This tax law can become very complicated very quickly, so it is best to speak with a professional about how life insurance can help you maximize your pension benefits.

Riders For Life Insurance Policies That Can Help You Maximize Your Pension Benefits 

Life insurance policies also include riders or policy add-ons, which are additional bits of coverage you can add on to your life insurance policy as needed. Some come with the policy, while others must be paid for with additional monthly premiums.

Usually, these riders have to be purchased with the life policy, and cannot be added as you go, so it is important to know which life insurance policy riders can help you maximize your pension benefits before purchasing life insurance.

This list is not comprehensive, but these 5 life insurance policy riders are available for both term and permanent life insurance policies and can help you supplement your pension benefits well.

1. Long-term care

The long-term care rider is a feature that allows you to borrow against a portion of your whole life insurance policy so that you can cover the cost of long-term care if that becomes a necessity later in life.

This is great for people who might need that type of coverage down the line especially given the flexibility offered by many companies. Most companies that provide this feature has flexibility in terms of home nursing or in-house care versus being in a nursing home.

2. Children’s Rider

If you have a family the child rider is going to be something you want to consider. This feature allows you to provide limited coverage for your children as well.

This rider also allows these children’s policies to mature over time until they can become their very own at the age of their maturity (usually between 18 and 25 depending on policy and company). These policies can be used to leave a college fund for a child, or a policy which can accumulate cash value by the time they reach adulthood.

This rider is a great option for people looking to maximize their pension benefits with life insurance and also leave a legacy for their family, children, grandchildren or great-grandchildren when they are gone.

3. Disability Income Rider

If at any point during the lifespan of your insurance policy you become disabled, the disability income benefit allows you to cash in on some of the death benefit you have to cover your costs while you are disabled.

In some situations, they will also forgo the premium you pay if you are disabled until a point where you are able to work again.

Perhaps you have a pension, but there are stipulations about when you may receive it and how you may be eligible. This rider offers a great way to ensure that if you are injured or disabled before you are eligible for your pension benefits, that you will still have life insurance coverage.

4. Waiver of Premium

As mentioned there are plenty of situations where you might be unable to financially afford coverage but you need to still keep that coverage. The solution is a waiver of premium benefit.

On your life insurance policy, a waiver of premium means that for whatever reason you are unable to pay, usually something like a disability, in which case the life insurance company can waive your premiums for the duration of your disability.

5. Terminal Illness Rider

If you are diagnosed with a terminal illness or a chronic illness and given less than 12 months to live or in some cases, less than 24 months, many life insurance companies will provide you with the terminal illness benefit.

This allows you to cash out a percentage of your death benefit prematurely to cover the costs of whatever you might be facing.

While your pension benefits help you to receive income in retirement, this is a hard situation to account for that can take families for a financial ride. This rider is a great way to maximize your pension benefits with life insurance and ensure that in the event of a terminal diagnosis, your family can afford your health care needs and maintain their standard of living.

Frequently Asked Questions About Using Life Insurance To Maximize Your Pension Benefits 

Finally, we thought we would take some time to answer some frequently asked questions about life insurance and pensions. This stuff gets confusing sometimes, but we are here for you always.

Can you use life insurance for retirement?

Not directly.

However, this does not mean there are not ways to use life insurance practically in a way that can both maximize your pension benefits and provide income for your loved ones in the event of your death, and even residual income for you in retirement.

If your goal is to supplement income for yourself in retirement with life insurance, a permanent policy may be best for you as long as you can start young enough to obtain low life insurance rates.

If your goal is to supplement income for your loved ones in the event of your death, then life insurance is a great way to do that, and also maximize your pension benefits by lining up the policy with the provisions you currently have covered.

Is life insurance necessary in retirement?

If you haven’t already taken out a life insurance policy and you are now retired, it’s not required that you take out a policy but it is in your best interest.

Nobody wants to think about passing away and they certainly don’t want to think about passing away unexpectedly, but it’s important to be proactive and focus on the fact that if you don’t plan ahead you will leave your family behind with an unexpected financial burden in the event of your death.

Your family might not be able to cover the cost of a funeral. They might rely upon your income. They might end up responsible for whatever debt you have left.

In order to protect your loved ones, it is in your best interest to take out a life insurance policy if you haven’t already.

Life insurance in retirement is a great way to supplement your pension benefits, and also a great way to make sure that your family is protected financially in the event of your death. It is strongly recommended that people in retirement with existing debt consider some form of life insurance policy.

What Should I Do If I Want To Use Life Insurance To Maximize My Pension Benefits?

If you are looking to supplement your pension benefits with life insurance, you should contact a professional.using an independent life insurance agent to maximize pensions benefits through the addition of a life insurance policy

This stuff is confusing and complicated. Every pension plan is different, as is every individual’s needs and wants. On top of that, each state has their own laws for taxes when it comes to estates, death, insurance, pensions and more.

The best way to ensure that you are taking all the options for maximizing your pension benefits into account is to speak with an independent life insurance agent who represents dozens of the best life insurance companies for supplementing pension benefits.

Life insurance is ALL WE DO.

Give us a call or get started comparing quotes. We will be sure to help you explore all of your options for maximizing your pension plan benefits with life insurance coverage to find the best option for you and your loved ones.


  • Ty Stewart

    Ty Stewart is a founder and contributor of He started researching and studying about life insurance when he got his first policy for his own family. He has been featured as a life insurance expert speaker at agent conventions and in top publications. As an independent licensed life insurance agent he has helped clients nationwide to secure affordable coverage while making the process simple.

  • Bennett Bier

    I’m Bennett Bier, owner, author and fact checker of Simple Life Insure. I believe working with a small independent broker offers consumers more personal attention and superior customer service. As an independent agent licensed in all 50 states and the District of Columbia I have access to many of the top A+ rated life insurance carriers. This lets me locate a plan that you will qualify for while saving you money at the same time. Over the years I have mastered the art of underwriting, getting approvals even for my highest risk clients. I’m also likely the person that will answer the phone when you call.