Martha and Mark are a married couple in their late sixties. They are concerned because Mark’s pension will dry up when he passes away, which would force Martha to drastically reduce her standard of living. Although their assets probably will be sufficient to support Martha for the rest of her life, they do not want to tap them unless absolutely necessary. Right now, the pension is substantial enough to supply most of their needs, leaving their other assets to grow and eventually pass to their beloved children.

Is there a way to insure against the risk of Mark’s early death and the loss of his pension income without breaking the bank on a high-cost permanent life insurance policy on Mark’s life?

How about a reversionary annuity?

Life insurance is often the go-to product in situations similar to Martha and Mark’s, but in many cases, insurance is out of the question. A term policy will not work because it will lapse, and a permanent policy may not be feasible because the premiums are normally high. And life insurance may be out of the question because of the insured’s health or age.

A reversionary annuity may be just what a couple like Martha and Mark need to make up the income shortfall that will come after Mark’s death. Reversionary annuities can be useful in any situation where one person will require regular income after the death of another, for instance:

1. Where the payout on a spouse’s annuity or pension pays out only over his lifetime.
2. Where the spouse who is likely to live longer will be unable to life comfortably without the other spouse’s Social Security or other payments that cease at the time of death.
3. Where a disabled child will depend on a parent for lifetime income.
4. Where a low-cost alternative to a buy-sell agreement for business owners is needed.

What exactly is a reversionary annuity?

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

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