I'm 27 and my wife is 23. She stays at home and I'm the breadwinner. If I die, I would like her to get fixed, inflation-adjusted payments until she dies.

According to the National Endowment for Financial Education, through the Washington Post, 70% of people who win the lottery or get a large windfall go bankrupt after a few years. I would not want this to happen to her.

So fixed payments would guarantee my wife a comfortable life, without the behavioural risks associated with getting a huge cash payment.

Does this exist? We live in Canada.

  • Note that (as Nano has already pointed out) with almost all death insurance, there's an option (ie, for your spouse once you are dead) to choose an annuity rather than a lump sum - but I think that's missing your point. – Fattie Mar 3 at 12:13
  • One point, you're aware that .. say you have a $1m policy. If you die when spouse is 25 that is basically unfortunately "nothing" and will last maybe 15 years. If you die when spouse is 70, $1m would be OK. Are you additionally asking if there's some sort of "fixed annually" life insurance ? – Fattie Mar 3 at 12:55

This is a logical question, but there seems to be little indication of such a product (an annuity purchased now that will cover the gap between your death and your wife's death). Ideally, it would simultaneously hedge the risks of your dying young and your wife's living long. Thus, it could support a higher guaranteed monthly payout because the most expensive scenario for the insurance company (lifelong payments to a young widow) is rare.

It could theoretically be structured with an upfront purchase like a single-premium deferred annuity (which is less likely to work because a young person perhaps could not afford the upfront cost), or with an annual premium like a life insurance policy (which would make more sense because you can pay more over time in the likely scenario where you live for a good while).

The closest similar mention is selecting an annuity payout as the death benefit of a traditional life insurance policy. However, this differs in that:

  • The choice between a lump sum payout and an annuity payout is made by the beneficiary (your wife) after the insured's (your) death. Even if it was agreed to choose the annuity, the "temptation" to take the lump sum would still be there (if this is what you're concerned about).
  • The death benefit is defined as a specific lump sum amount, so the annuity payout to your wife will vary depending on when you die and what your wife's remaining life expectancy is. It seems you want a different approach where the annuity payout is defined in advance and it's the lump sum value that would vary.
  • Just for clarity (I'm not criticizing the answer) this answer is (correctly) saying "there's no such thing", I believe. – Fattie Mar 3 at 12:11

Just because your wife stays home does not mean she is incapable of handling money. Nor does it mean that she will not enter the workforce at some time later in life. There might be something that precludes either one of these situations but even those may change.

Life insurance proceeds becomes the property of the beneficiary. It is typically left up to them how to deal with the proceeds. You could strongly suggest to your wife to purchase an annuity, but it would still be left up to her. Unless of course she is declared mentally incompetent.

This would be a weird situation as in you would need a lot more life insurance at a younger age, then you would at an older age. If you were to die with her in her twenties you would need a much larger annuity then you would if you were to die in her 50s. In fact you may not even be able to buy an annuity for someone below 40 years old.

What might be a better option would be to fund a trust, and have a trustee that you ... trust. This person would be free to invest in the stock market, far better at young age and a hedge against inflation. You would probably need to compensate the trustee, in some fashion, but it would probably be a lot less costly then an annuity.

My advice would be to talk to an agent and really consider why you would remove such decisions from your wife's per view. Keep in mind that any Life Insurance agent will attempt to sell you whole or universal life. Stay away from those especially considering you will likely need at least 2 million in coverage, and probably 3 on yourself. Term life is the way to go.

Also, if you have children, you will likely need to have some life insurance on her.


Force a death insurance payout to be taken as an annuity:

All/most death insurances, when paid-out, the beneficiary can choose either a lump or an annuity. (Alternately of course, even if beneficiary takes a lump, it's trivial to call an annuity company and convert that lump to an annuity.)

Nature of the question on this page is, can you "force" an annuity?

If I'm not mistaken you can

  • set the payout of your death insurance to not in fact be your spouse, or your own estate in general, but in fact be another entity X

  • that other entity X would be, essentially your solicitor's company or some sort of trust company {I do not know what X would be exactly in Canada, someone else may know}

  • that entity X would in fact then enact an annuity, paid to spouse

Unrelated (?) issue:

Note that if you die when spouse is 25, spouse will need an incredibly higher payout than if you die when spouse is 70. (This applies equally whether the payouit is taken as lump or annuity.)

  • This would not, however, fully hedge the risk that OP dies young: The life insurance payout would fund only a small monthly annuity for the wife in that case. – nanoman Mar 3 at 12:22
  • Indeed that's true - (note my comment #2 under the answer) - I assumed the OP was asking only about the "force as annuity" concept. – Fattie Mar 3 at 12:56

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