Can you believe the holidays are already upon us? The calendar winding down is your cue to reach out to clients to discuss year-end planning that may help minimize their 2025 taxes and potentially avoid penalties. Here are four places to start.
Protecting a Surviving Spouse: Strategies Using Life Insurance and Annuities
December 12, 2025
Life insurance and annuities aren’t just insurance products—they’re powerful tools for legacy planning, protection, and long-term security. While naming a spouse as the beneficiary might seem straightforward, the strategy behind it can significantly influence tax efficiency in retirement, as well as wealth preservation and transfer.
How Life Insurance Can Provide Security and Facilitate Wealth Transfer
Although the primary purpose of life insurance is death benefit protection, when used strategically, it can play other critical roles. With careful planning, cash-value life insurance can offer access to loans or withdrawals of cash value. And life insurance can also help facilitate wealth transfer.
1. Access to cash value: Cash value life insurance policies such as whole life or indexed universal life (IUL) can build cash value over time.
- Policyholders can access this cash value through loans or withdrawals, which are typically tax-free1 when handled appropriately. Cash value distributions are not taxable and won’t affect taxes on Social Security retirement benefits or Medicare surcharges.
- A client could potentially take a loan or withdrawals during down markets to avoid withdrawing from other investments. If this is the plan, then a life insurance policy with certain guarantees may reduce the likelihood of needing additional premiums to support the policy in future years.
2. Wealth transfer: Understanding a client’s estate and legacy planning goals is just the beginning; the equally important next step is navigating the rules that govern how different assets transfer at death, which is the science of estate planning.
- Life insurance plays a key role in this process with income-tax-free death benefits. A death benefit can provide financial support to a beneficiary who may be a surviving spouse, help cover funeral and memorial expenses, or be invested if immediate income isn’t needed.
- For larger estates, life insurance can help offset potential estate-tax liabilities and may be used to fund a bypass trust or an irrevocable life insurance trust (ILIT) as part of a broader legacy plan.
Annuities Can Provide Payments Over Two Lives and Facilitate Legacy Planning
Annuities can provide payments guaranteed for life or over the lives of both spouses. When structured properly, annuities can supplement a surviving spouse’s retirement income, reduce financial stress, and provide a layer of security that could last for years. They also include legacyplanning benefits.
1. Payments: Annuities are designed to provide protected lifetime payments, which can be guaranteed over two lives (Joint Life), ensuring a spouse can continue income that will not run out.
- Depending on the type of annuity, payments can be set up immediately or be deferred.
- Lifetime payments at steady intervals can be set up through annuitization or an income benefit that is often optional for an additional charge. If clients choose to annuitize a nonqualified annuity, income amounts may be only partially taxable because of the exclusion ratio, which treats each payment as part principal and part earnings. If an annuity is qualified (as in an IRA), all withdrawals and payments are fully taxable. With living benefits, income also may last over two lives, and these benefits are designed to ensure future income is protected from market volatility during the accumulation phase, which might increase income over both lives compared to annuitization.
Whether annuitizing to create a steady cadence of payments or using a living benefit, structuring joint lifetime payments for spouses is an important component of annuities that can help ensure a widow or widower can maintain income for life.
2. Legacy Planning: Annuities typically include a beneficiary benefit.
- A standard beneficiary benefit ensures any remaining contract value goes to the beneficiary. Enhanced benefits may be available that can deliver more value for an additional cost. While the beneficiary benefit is not income-tax-free the way death benefits are with life insurance,2 the beneficiary—if a surviving spouse—is not required to take a lump-sum distribution or pay taxes immediately.
- If the surviving spouse is the sole primary beneficiary, he or she can elect to continue the annuity contract as the owner. This option allows the spouse to maintain tax deferral and control the timing of distributions, which can be a valuable strategy for managing taxable income over time.
Don’t Overlook Roles that Life Insurance and Annuities Can Play
Life insurance and annuities can be powerful tools in retirement planning, especially when the goals extend beyond accumulation to income stability and legacy planning. Life insurance offers tax-advantaged access to cash value and estate-planning benefits, while annuities provide reliable, customizable payments, including Joint Life and spousal continuation options. Used strategically, life insurance and annuity strategies can help clients manage taxes, reduce market risk, create sufficient cash flow and transfer wealth across generations. For financial professionals, integrating these solutions can strengthen retirement plans and deliver long-term value.
ACTIONS YOU CAN TAKE RIGHT NOW
- Identify clients who may need additional lifetime income.
- Evaluate whether or not tax-deferred annuities or life insurance may be an option for your clients.
- Review client beneficiary designations and implement additional income strategies as needed.
For more information about retirement-planning, please contact our Retirement Strategies Group at RSG@PacificLife.com or (800) 722-2333, ext. 3939. PacificLife.com
This material is educational and intended for an audience with financial services knowledge.
No bank guarantee • Not a deposit • May lose value
Not FDIC/NCUA insured • Not insured by any federal government agency
25-528 VLQ4936-00 12/25 E1228
Pacific Life, its affiliates, distributors, and respective representatives do not provide tax, accounting or legal advice. Any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor or attorney
Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.
Unless otherwise noted, all aforementioned money managers, their distributors, and affiliates are unaffiliated with Pacific Life and Pacific Select Distributors, LLC.
Pacific Life refers to Pacific Life Insurance Company and its subsidiary Pacific Life & Annuity Company. Insurance products can be issued in all states, except New York, by Pacific Life Insurance Company and in all states by Pacific Life & Annuity Company. Product/material availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products it issues.
Variable insurance products are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company and an affiliate of Pacific Life & Annuity Company.
The home office for Pacific Life & Annuity Company is located in Phoenix, Arizona. The home office for Pacific Life Insurance Company is located in Omaha, Nebraska.
No bank guarantee • Not a deposit • Not FDIC/NCUA insured • May lose value • Not insured by any federal government agency
For financial professional use only. Not for use with the public.