Spousal Provision

By Tammy Flanagan

March 13, 2009

In a recent column, I took on the subject of federal spousal survivor benefits. That prompted more questions from readers about the value of survivor benefits vs. life insurance -- including this one, which I thought I'd address this week:
Has anyone looked into using a universal life insurance policy versus staying with the federal spousal survivor benefit? Of course, I would maintain the minimum amount of survivor benefit to maintain health coverage for my spouse. There look to be considerable savings with the universal life over the long term, although I sense there are risks that a spouse could outlive the benefits. Any thoughts or references I could look into?

Courtesy of Wikipedia, here's a definition of universal life insurance:

Universal life is a type of permanent life insurance based on a cash value. That is, the policy is established with the insurer where premium payments above the cost of insurance are credited to the cash value. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance charge, and any other policy charges and fees which are drawn from the cash value if no premium payment is made that month.

I don't pretend to be an insurance expert, but here are some things to consider before deciding to substitute life insurance for the government survivor annuity benefit:

I think the fundamental question in this debate is how much risk your spouse is willing to tolerate. Ultimately it should be up to them to decide whether to accept an alternative to the spousal survivor benefit to which they are entitled.

I suppose I sound a little biased, but I wanted to balance the bias that an insurance agent may have when their commission is on the line. After all, I don't receive any money if you provide your spouse with a government survivor annuity.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.

By Tammy Flanagan

March 13, 2009