How Life Insurance Effects Social Security Benefits

Retirement benefits through the Social Security Administration or SSA, which can be received beginning at the age 62, are not impacted by your life insurance. Since you put a portion of your paycheck toward Social Security benefits while you were working, you are entitled to them regardless of your overall financial resources. The amount of your social security benefit payment is based on how much you earned while you were working and the age in which you begin collecting the government benefit.

To give you an idea of how much you might receive, the average monthly benefit for a retired worker in 2020 was $1544.

Supplemental Security Income (SSI) and Social Security Disability Income

Supplemental Security Income or SSI is another program from the Social Security Administration and it has different rules. Supplemental Security Income provides monthly payments to U.S. Citizens who are age 65 or older if the person is blind or they have certain other disabilities.

life event in canoe

If you are an adult, the Social Security Administration considers a disability to be a physical or mental impairment that can be expected to lead to death, makes a person unable to perform any of the activities of daily living (ADL) or has lasted or is expected to last for at least 12 months.

Many people think of Social Security as just another of the many retirement plans. However, some of your Social Security taxes go toward survivor benefits for workers and their families, so it’s not just for you.

In some instances, the amount of the survivor’s benefits under Social Security is more than the amount of the individual life insurance benefits that you have now. As you work and pay Social Security taxes, you earn credits toward your Social Security benefits.

In order for your family to receive your Social Security payments you have to work a certain number of years and that number depends on how old you are when you die. The younger you are, the fewer years you need to have worked.

No one needs more than 10 years of service (work, labor) to be eligible for any Social Security benefit.

Under a special rule, if you’ve worked for only one and one-half years in the three years just before your death, benefits can be paid to your children and your spouse who is caring for the children. 

social security benefits

Who can get survivor benefits based on your work history?

 • Your widow or widower may be able to get full benefits at their full retirement age. The full retirement age for survivors is 66 for people born in 1945-1956. The full time of retirement age will gradually increase to 67 for people born in 1962 or later. Reduced benefits can be received by your widow or widower as early as age 60. Benefits can begin as early as age 50 if the surviving spouse is disabled.

Your widow or widower can get benefits at any age if they are taking care of your child who is younger than age 16 or disabled, who’s receiving Social Security benefits.

 • Your unmarried children, younger than age 18 (or up to age 19 if they’re attending high school full time), can also get benefits. Your children can get benefits at any age if they were disabled before age 22. Under certain circumstances, benefits to your stepchildren, grandchildren, step grandchildren, or adopted children can be paid. NOTE: Disabled children whose parents have limited income and resources may be eligible for Supplemental Security Income benefits. 

 • Your dependent parents can get benefits if they’re 62 or older. You must be providing at least half of their support for your parents to qualify as dependents.

You as a life insurance beneficiary

After a loved one dies, the primary beneficiary needs to know how to collect your life insurance death benefit and your Social Security benefit payments. Both of which they are entitled to. The executor of your estate doesn’t usually handle this task. If the survivors depended on the deceased person for financial support, they may need to quickly get cash for urgent, ongoing expenses such as the mortgage, car payment(s) and credit card payments, so collecting the money from this benefit needs to be done as soon as possible.

beneficiary designation form

Social Security Benefits: One-Time Death Benefit

The Social Security death benefit, which is currently a small lump-sum amount of $255, is fairly easy for surviving family members to claim and is paid very quickly, as long as the deceased person had enough Social Security work credits. The surviving spouse or dependent children can claim this benefit and can also receive ongoing survivors benefits that the spouse or children may be entitled to.

Social Security Benefits: Monthly Survivors Benefits

Federal law allows family members be entitled to monthly survivors benefits. You don’t have to be at the retirement age to receive benefits: dependent children, surviving spouses, and even a former spouse may be eligible for survivors benefits. Because these benefits are not retroactive, the faster family members apply for these benefits, the better and the faster they can be received.

The application process for receiving the survivor’s benefits can be started over the phone or online, but the process will not be completed without a face-to-face meeting with someone at the local social security office. You will be required to show your ID, social security card, and the death certificate.

The following family members may be entitled to monthly social security survivor benefits.

*Surviving spouses: A surviving spouse who is already receiving Social Security benefits based on the deceased person’s earnings just needs to supply the death certificate to the Social Security Administration or SSA. The SSA will change monthly benefits to survivors benefits. If the spouse is already getting benefits, then the SSA will see if the survivor’s benefit would be higher than the benefit amount they are currently receiving. The spouse will receive the higher amount.

A surviving spouse who is not already getting benefits or is getting benefits based on his or her own earnings record will need to apply for social security survivors benefits. Eligibility for survivors benefits will depend on the survivor’s age and family circumstances. Benefits are given to any surviving spouse who:

  • takes care of the deceased person’s child who is under 16 or disabled (this is commonly called the “mother’s benefit” or “father’s benefit”)
  • is age 60 or over, or
  • is age 50 or older and becomes disabled within seven years of the worker’s death or within seven years after the mother’s or father’s benefit ends.

*Former spouses: Divorced spouses are eligible for survivor benefits under the same rules as surviving spouses. The marriage had to have lasted at least ten years, with proof from a marriage certificate and the divorced spouse does not remarry before age 60. An exception to this is if the ex-spouse is taking care of the deceased person’s young or disabled child or children, then the length of marriage doesn’t matter.

*Unmarried children: Dependent children of the deceased person are eligible for benefits if either of the following apply:

  • Minor children are 17 or younger (or up to age 19 if they are attending high school full time). Grandchildren and stepchildren may also be eligible under certain circumstances.
  • They are disabled, no matter what their age.

If children are already receiving benefits, the Social Security Administration will change the benefits to survivors benefits after the family notifies the SSA of the death.

*Dependent parents: Parents who depended on the deceased worker for at least half of their support and who are at least 62 years of age are also eligible for benefits.

retired with social security

Does life insurance coverage affect social security programs? No, but what about Federal Supplemental Security Income? Yes it can.

As of May 2021, there were over 7.8 million people who were receiving Supplemental Security Income. The amount that can be received through this program can vary from a starting point of approximately $794 for an individual or $1,191 for a couple.

There are two types of life insurance policies a person can have: Term, usually lower premiums, and Permanent, usually higher premiums.

Your Supplemental Security Income can be affected, but it depends on the type of life insurance that you have. If you have Term life insurance there is no impact on your Supplemental Security Income because it only has value in the event of your death. It is not considered an asset like real estate.

If you have a Permanent life insurance policy, such as a whole life policy or a final expense policy, these can affect your Supplemental Security Income benefits. If you have any policy with an amount of coverage or a cash surrender value of $1,500 or more, this will impact your Supplemental Security Income.

If your policy earns dividends or if you take a loan from its cash value, a percentage of those earnings shared with you from insurance companies will count as income. This type of policy is considered a personal financial product.

financial product

If you receive a death benefit from someone else’s life insurance policy in the form of a lump-sum payment, this can have a positive effect on your financial situation and therefore may very well effect your eligibility for Supplemental Security Income. It will not effect your social security income.

If someone plans to name you as the primary beneficiary, you should have a planned strategy. A legal way is putting the beneficiary as your trust or setting it up for you to receive small monthly annuity benefits.

It is a good idea to use available resources such as a probate attorney or financial advisor to help with this type of planning. 

Receiving Supplemental Security Income from the federal government does not prevent you from buying a life insurance policy, just the type of life insurance policy you get. It is up to you on how you spend the benefits so that your family and loved ones are protected. Make sure you understand how the different types of life insurance can affect your loved ones.

The bottom line is, you can receive the benefits of both your SSI payments and Supplemental Security Income and have your life insurance too!

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