Should You Get a Survivor Annuity or Purchase Life Insurance?
When deciding how to protect you and your spouse in your old age, you often need to make decisions about insuring your income. There are two approaches to doing this. The first approach is purchasing a life insurance policy. The second approach is to purchase a survivor annuity.
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Types
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A life insurance policy pays a death benefit when you die. Some types of life insurance allow you to purchase the death benefit on the life of you and of your spouse. These are called joint life insurance policies. The alternative to life insurance is an annuity. A survivor annuity allows you and your spouse to own the annuity contract and makes payments to yourselves.
Significance
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A joint life insurance policy will pay a death benefit when the first individual dies. The death benefit is often left to the surviving spouse. A survivor annuity pays a guaranteed income to both spouses. When the first spouse dies, the annuity keeps paying until the second spouse dies.
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Benefit
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The benefit of the joint life policy is that life insurance death benefits are tax-free. When you die, your spouse will receive the death benefit and can spend the money or invest it in any way she sees fit. The benefit of a joint and survivor annuity is that the annuity pays both spouses regardless of who lives and who dies. The income is guaranteed.
Disadvantage
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The disadvantage of purchasing life insurance in this scenario is that the insurance policy doesn't provide any income during your life. The policy is meant to provide an income after one or the other spouse dies. The disadvantage to a survivor annuity is that the income of the annuity never increases. Also, when one spouse dies, the other spouse will still have to pay for funeral costs and burial expenses, and the annuity won't provide extra money for these costs.
Considerations
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Consider buying both a joint life insurance policy and a survivor annuity. If you purchase both, you'll be able to have a guaranteed income for life but provide your spouse with a lump sum of money that can be used for funeral expenses or to supplement her income.
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