Insurance for Retirement with Private Pensions

Published December 6, 2017
If you bought life insurance to protect your family from the loss of your income should you pass away early, you might also want to buy insurance for retirement through a Personal Pension to protect them against the opposite risk: that you live a long time and run out of money.
  • Life insurance protects against the risk of dying younger than expected.
  • Receiving pension-like income in retirement protects against the risk of living longer than expected.
  • Both term life insurance and insurance for retirement provide you a fixed, guaranteed benefit in exchange for low monthly premiums.

Just like there are many kinds of annuities (which makes up insurance for retirement), there are many kinds of life insurance. It’s important to keep in mind what life insurance and annuities each do and how the simplest versions of these products often offer the best value.

Insurance for Retirement and Life Insurance: What Does Insurance Do?

Insurance protects you from the financial harm of something unexpected happening. It does this by pooling risk. That’s because while events are unpredictable at the individual level, they’re far more predictable at the group level. For example, it’s hard to know when any one individual will get in a car accident, but it’s easy to predict car accidents across a larger population. And, since car accidents come with financial consequences, the best way to protect against them is through insurance.

In the case of life insurance, you’re protecting your family from the risk you die young. That has a financial consequence because your family loses access to your income.

In the case of insurance for retirement, or annuities, you’re protecting yourself from the risk of living longer than expected. Today’s approach to preparing for retirement (unless you’re super wealthy) requires you to make a bet on how long you’ll live. That’s how you’re implicitly deciding how much to save for retirement, and later, how much to spend every month in retirement. If you end up living longer than expected, there can be dire financial consequences — unless you have insurance for retirement.

Insurance for Retirement and Life Insurance: Simplest is Best

The simplest kind of life insurance is term life insurance. You pay a monthly premium, and in exchange, your family gets a death benefit if you die during the term you’re covered for in the policy. Because there’s no cash value or “upside potential,” it’s the cheapest type of life insurance you can buy. And, with the money you save from choosing term over the other types (namely whole life and universal life), you can invest to get the other benefits.

The simplest kind of insurance for retirement is an income annuity, which is what a Personal Pension is. For every deposit you make into your Personal Pension, you get a guarantee of lifetime annuity retirement income. It’s as simple as that. It also does not have cash value or “upside potential,” making it cheaper and better than the other types of annuities (namely variable annuities and fixed indexed annuities).

Insurance for Retirement: The Personal Pension Approach

You can buy an income annuity all at once. But more and more people are taking a different approach and allocating to the Personal Pension through small deposits over time, just like the way you pay small periodic premiums into your life insurance policy.

Note that neither insurance for retirement through the Personal Pension nor life insurance are the best way to take market risk. That’s what simple investment products provided by financial services companies like Vanguard are for.

Insurers providing you with investments probably means you’re paying more money than you’d otherwise need to in order to get the market risk you’re looking for.

If you have life insurance, you’ve protected your family against risk of dying young. Now with insurance for retirement through the Personal Pension, you can now protect yourself against the much happier risk of living longer than expected.

Insurance for Retirement: What’s Next?

If you’re interested in buying insurance for retirement, you can do so here on our website. Click below to see what annual contributions into a Personal Pension will guarantee you in annuity retirement income. After just a few years in retirement, you’ll have recouped your initial investment, and the rest will be profit. A $5,000 contribution is necessary to start an account.

From there, you can fill out the information to have one of our specialists follow up with you, or continue with the enrollment process on your own. To do that, start with the Personal Pension Builder, where you’ll be able to set a goal for how to grow your pension over time. Note that all future contributions are optional, but it’s always great to have a goal.

 

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Matt Carey

Matt Carey

Financial Planning Professional

Matt Carey is the co-founder and CEO of Blueprint Income. He believes in the power of technology to make retirement simpler. Matt is a regular contributor to Forbes.com and has been quoted in both the New York Times and Morningstar.