Life Insurance...Social Security also pays?

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Darth Xanadu
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Life Insurance...Social Security also pays?

Post by Darth Xanadu »

I'm looking to purchase term life insurance (to replace the voluntary group life insurance I buy through work). I have a 1 year old at home, I am 41 and my spouse is 34.

I saw something on the Social Security website that says
"You have enough credits for your family to qualify for survivor benefits. If you die this year, certain members of your family may be eligible for these benefits:
Your child:
$2,115 a month
Your spouse who is caring for your child:
$2,115 a month
Your spouse (starting at full retirement age):
$2,820 a month
Your total family benefits cannot be more than $4,935 a month.
Your spouse or minor child may be eligible for a special one-time death benefit of $255."


So should I factor this in when trying to determine how much term life to purchase? So my family will get $4,230 / month if I die?

I will probably get a 20 year policy because at that point we should be in decent financial shape (at or nearing retirement for me) and my kid will be in college and/or otherwise out on his own. I don't think I want to pay for 30 year, it's way more expensive at my age vs. 20 year. But I may scale back on the death benefit if my family can rely on this SS payment as well.

Thank you!
DX
Rupert
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Re: Life Insurance...Social Security also pays?

Post by Rupert »

These are called social security survivor benefits, and, yes, you should factor them into your decision re how much life insurance you need. Note that the benefits are limited not just by the dollar amounts you quoted but also by age: your child's benefits stop at age 18 (19 if still in secondary school) and your wife's stop when your youngest child turns 16.
drawpoker
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Re: Life Insurance...Social Security also pays?

Post by drawpoker »

Also, if your wife decides to work, she would be under the earnings test for beneficiaries younger than retirement age so her survivors benefit would be reduced if she goes over the annual earnings limit. Currently, $17,040
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mhc
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Re: Life Insurance...Social Security also pays?

Post by mhc »

This is a very important part of Social Security and should be considered.

I have decided that between SS and my nest egg, I don't need life insurance. Maybe my DW would be better off without me. LOL
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Darth Xanadu
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Re: Life Insurance...Social Security also pays?

Post by Darth Xanadu »

drawpoker wrote: Tue Sep 18, 2018 3:20 pm Also, if your wife decides to work, she would be under the earnings test for beneficiaries younger than retirement age so her survivors benefit would be reduced if she goes over the annual earnings limit. Currently, $17,040
Interesting ... so after looking at SSA website: "If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2018, that limit is $17,040."

Does this mean if my spouse works and earns $2,115*12*2+$17,040 = $67,800 annually her benefit is reduced to $0?
billfromct
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Re: Life Insurance...Social Security also pays?

Post by billfromct »

So if your wife earned $17,042, her survivor benefit would be reduced to $2,114/month (reduced from $2,115/month). If she earned $17,044, her benefit would be reduced to $2,113/month, etc. You can do the math.

If your wife works, it will not reduce the SS survivor benefit your child would receive.

A note of caution. If a child receives SS survivor benefits, that money has to used for the child's expenses or saved/invested for the child. The surviving parent must keep very good records. I found out as I was audited a couple of times for my children when they received SS survivor benefits.

I saved/invested all their money, so it was easy to document where the money went. If I had used their money for their food, clothing, their % of household expenses, etc., it would have been a lot more complicated. I have a difficult time believing that everyone that has kids collecting SS survivor benefits would keep such good records if they used the SS survivor benefit money for day to day expenses.

When my kids turned 18, I got a letter from SS telling me to send all the money to them so they could send it back to my kids since they had turned the age of majority (18).

I sent the SS Administration a letter telling them that all the money was deposited into accounts under their name (529, UGMA, etc) & I listed all the accounts & the amount of each account. I told them I would not send SS the money just so they could send it back to my kids.

I never heard back from the SS Administration.

bill
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dm200
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Re: Life Insurance...Social Security also pays?

Post by dm200 »

Darth Xanadu wrote: Tue Sep 18, 2018 3:06 pm I'm looking to purchase term life insurance (to replace the voluntary group life insurance I buy through work). I have a 1 year old at home, I am 41 and my spouse is 34.

I saw something on the Social Security website that says
"You have enough credits for your family to qualify for survivor benefits. If you die this year, certain members of your family may be eligible for these benefits:
Your child:
$2,115 a month
Your spouse who is caring for your child:
$2,115 a month
Your spouse (starting at full retirement age):
$2,820 a month
Your total family benefits cannot be more than $4,935 a month.
Your spouse or minor child may be eligible for a special one-time death benefit of $255."


So should I factor this in when trying to determine how much term life to purchase? So my family will get $4,230 / month if I die?

I will probably get a 20 year policy because at that point we should be in decent financial shape (at or nearing retirement for me) and my kid will be in college and/or otherwise out on his own. I don't think I want to pay for 30 year, it's way more expensive at my age vs. 20 year. But I may scale back on the death benefit if my family can rely on this SS payment as well.

Thank you!
DX
Be aware that, for surviving children, this is only paid until age 18 or graduation from High School. To be safest, I would go for 30 year
drawpoker
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Re: Life Insurance...Social Security also pays?

Post by drawpoker »

Yes, that is the way it works.

It is not permanent, SSA will evaluate the earnings year by year and make adjustments if some years the beneficiary goes over, other years does not.

Since SSA benefits are not taxable many young widows with young children find it advantageous to work just part-time. Bring in just enough extra to stay under the annual limit.

That is what I did until the youngest turned 16.

Since we are not the subject this might be a good place to caution people on a dirty little secret of SSA benefits if you are a representative payee (for children)

Don't think you can sock away the benefits in a savings account in the child's name with an eye for future college funds, a car for h.s. graduation, trip to Europe, etc. At the end of the term SSA will send you a form requesting a breakdown by category for how the money was spent, and, if any is leftover and unspent, that money must be returned to the SSA treasury.

Many people don't know this. My own sister in law was ignorant of this rule and regularly berated me for not "saving" the monthly checks since I didn't need all the money for living expenses. :twisted:
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David Jay
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Re: Life Insurance...Social Security also pays?

Post by David Jay »

Some people layer their policies. For instance, let’s say that you determine you need 1.5M in coverage. Instead of choosing between 20 year and 30 year, you could purchase both a 1M, 20 year policy and a 500K, 30 year policy. Or even 3 policies, 500K each 10 year, 20 year and 30 year.
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dm200
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Re: Life Insurance...Social Security also pays?

Post by dm200 »

Others might add/correct this, but I believe that children of a deceased parent would cease getting such benefits if they were legally adopted - perhaps if the surviving parent remarried.
drawpoker
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Re: Life Insurance...Social Security also pays?

Post by drawpoker »

Well, if the surviving parent remarries, then they are no longer eligible for benefits, either.

So everyone is out of the picture.
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dm200
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Re: Life Insurance...Social Security also pays?

Post by dm200 »

drawpoker wrote: Tue Sep 18, 2018 6:08 pm Well, if the surviving parent remarries, then they are no longer eligible for benefits, either.
So everyone is out of the picture.
That is not my understanding. Maybe someone here has the answer or experience.
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Re: Life Insurance...Social Security also pays?

Post by drawpoker »

Yes, the SSA website has the answer. And experience.

Quote:

"As a widow or widower, you cannot get survivor benefits if you remarry before the age of 60 (unless that marriage ends)."

Got it?
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dm200
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Re: Life Insurance...Social Security also pays?

Post by dm200 »

drawpoker wrote: Tue Sep 18, 2018 7:18 pm Yes, the SSA website has the answer. And experience.
Quote:
"As a widow or widower, you cannot get survivor benefits if you remarry before the age of 60 (unless that marriage ends)."
Got it?
Right - for the widow or widower. The question is the children of the deceased who can get benefits to age 18 (or 19 if still in High School). My understanding is that the remarriage of the surviving parent is irrelevant as long as the new spouse does not legally adopt.
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Re: Life Insurance...Social Security also pays?

Post by drawpoker »

dm200 wrote: Tue Sep 18, 2018 7:38 pm
drawpoker wrote: Tue Sep 18, 2018 7:18 pm Yes, the SSA website has the answer. And experience.
Quote:
"As a widow or widower, you cannot get survivor benefits if you remarry before the age of 60 (unless that marriage ends)."
Got it?
Right - for the widow or widower. The question is the children of the deceased who can get benefits to age 18 (or 19 if still in High School). My understanding is that the remarriage of the surviving parent is irrelevant as long as the new spouse does not legally adopt.
I am sorry, dm200, I do not know how to make it any clearer. I also do not understand what you are trying to say now.
:?:
Are you now asking if the children who are under 18 can get married and keep their benefit? Is that what you are driving at? :confused :confused

Your understanding "that the remarriage of the surviving parent is irrelevant as long as the new spouse does not legally adopt." is just not correct.
What is it you don't understand?

At the risk of repeating myself - if a widow or widower (surviving parent as you call it) has a re-marriage before the age of 60 - that's it. No more survivor benefit.
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dm200
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Re: Life Insurance...Social Security also pays?

Post by dm200 »

drawpoker wrote: Tue Sep 18, 2018 7:48 pm
dm200 wrote: Tue Sep 18, 2018 7:38 pm
drawpoker wrote: Tue Sep 18, 2018 7:18 pm Yes, the SSA website has the answer. And experience.
Quote:
"As a widow or widower, you cannot get survivor benefits if you remarry before the age of 60 (unless that marriage ends)."
Got it?
Right - for the widow or widower. The question is the children of the deceased who can get benefits to age 18 (or 19 if still in High School). My understanding is that the remarriage of the surviving parent is irrelevant as long as the new spouse does not legally adopt.
I am sorry, dm200, I do not know how to make it any clearer. I also do not understand what you are trying to say now.
:?:
Are you now asking if the children who are under 18 can get married and keep their benefit? Is that what you are driving at? :confused :confused
Your understanding "that the remarriage of the surviving parent is irrelevant as long as the new spouse does not legally adopt." is just not correct.
What is it you don't understand?
At the risk of repeating myself - if a widow or widower (surviving parent as you call it) has a re-marriage before the age of 60 - that's it. No more survivor benefit.
OK - let me back off and do some research. The situation may have changed, but the situation of some friends of mine was this. "John" and "Mary" were both employed for a number of years under Social Security. They were married and had two children. When the two children were both under 3, "Mary" had breast cancer and died within a year of being diagnosed. The children were eligible for and received Social Security survivor benefits. A year or so after "Mary" died, "John" remarried and his new wife was "Sue". The two children (as I recall being told) continued to receive SS survivor benefits - even though her father remarried -- BUT only as long as "Sue" (new step-mother) did not legally adopt the two children.
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Re: Life Insurance...Social Security also pays?

Post by Dottie57 »

drawpoker wrote: Tue Sep 18, 2018 7:48 pm
dm200 wrote: Tue Sep 18, 2018 7:38 pm
drawpoker wrote: Tue Sep 18, 2018 7:18 pm Yes, the SSA website has the answer. And experience.
Quote:
"As a widow or widower, you cannot get survivor benefits if you remarry before the age of 60 (unless that marriage ends)."
Got it?
Right - for the widow or widower. The question is the children of the deceased who can get benefits to age 18 (or 19 if still in High School). My understanding is that the remarriage of the surviving parent is irrelevant as long as the new spouse does not legally adopt.
I am sorry, dm200, I do not know how to make it any clearer. I also do not understand what you are trying to say now.
:?:
Are you now asking if the children who are under 18 can get married and keep their benefit? Is that what you are driving at? :confused :confused

Your understanding "that the remarriage of the surviving parent is irrelevant as long as the new spouse does not legally adopt." is just not correct.
What is it you don't understand?

At the risk of repeating myself - if a widow or widower (surviving parent as you call it) has a re-marriage before the age of 60 - that's it. No more survivor benefit.
No more survivor benefit for the wife. I believe kids -who receive separate benefits - continue receiving.
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Re: Life Insurance...Social Security also pays?

Post by dknightd »

I would ignore the potential SS benefit. That is what I did. I'd consider it a bonus for them if they had to live without me to help out.
In picking your life insurance amount, consider it is not adjusted with inflation. Like most insurance you hope to never need it, but you want it there just in case. I bought 5 years of my salary, now worth about 1.5 years. And about the same for my wife. I cancelled them yesterday. I hope we don't die, and when we do we'll probably have enough assets so it will not matter to the survivor. You should have life insurance on both of you. Child care is not inexpensive. My kids are probably able to take of themselves now - I hope.
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Re: Life Insurance...Social Security also pays?

Post by zrail »

drawpoker wrote: Tue Sep 18, 2018 4:44 pm Don't think you can sock away the benefits in a savings account in the child's name with an eye for future college funds, a car for h.s. graduation, trip to Europe, etc. At the end of the term SSA will send you a form requesting a breakdown by category for how the money was spent, and, if any is leftover and unspent, that money must be returned to the SSA treasury.
Annual reporting is no longer required if the representative payee is the parent or legal guardian of recipient. This changed with the passage of H.R. 4547 back in April of this year.

Also, returning conserved funds doesn't mean they go back into the Treasury. SSA would give them to the new payee or the beneficiary directly, depending on the circumstance. If you saved them in an account titled to the beneficiary you just have to tell SSA that and send statements or other proof. They'll drop the case. Link to SSA procedures for transfer of conserved funds.
Last edited by zrail on Tue Sep 18, 2018 8:32 pm, edited 3 times in total.
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Re: Life Insurance...Social Security also pays?

Post by drawpoker »

Dottie57 wrote: Tue Sep 18, 2018 7:57 pm No more survivor benefit for the wife. I believe kids -who receive separate benefits - continue receiving.
Of course the kids continue, no one said otherwise. dm200 thought surviving parents could re-marry before age 60 and continue to keep the widow/widower check, just as long as they didn't allow the new spouse to legally adopt the kid(s)
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Re: Life Insurance...Social Security also pays?

Post by drawpoker »

zrail wrote: Tue Sep 18, 2018 8:21 pm
Annual reporting is no longer required if the representative payee is the parent or legal guardian of recipient. This changed with the passage of H.R. 4547 back in April of this year.

Also, as far as I understand it, saving the benefits in a UTMA or 529 titled in the minor's name has always been allowed. If you saved the benefits in your own account, I can see SSA wanting it back, but recovering funds properly accounted for in a minor's account doesn't make any sense to me.
Annual reporting? A joke.

Back when I started in the early '80's, the "Report of Representative Payee" would be sent out quarterly. Then, it started to lag, twice a year, then once a year. By the mid-nineties, I was getting the thing in the mail maybe every 2 or 3 years. Really. Am quite sure all of this was related to the drastic budget cuts in SSA, closing field offices, cutting back hours at existing office, laying off so many workers the wait at the phone lines became unending affairs.

So am not surprised they made the representative payee change. Just another cutback to save $$$

Can't recall now just what the wording was back then on how the beneficiary's money had to be titled in order to be legit. Think you are right about the UGTMA. I do remember consulting an attorney about the advisability of having both checks (mine and their's) going on direct deposit to the same checking account. At that time SSA was making noise about co-mingling funds, but, as is their custom, failing to provide any hard, concrete definitions or guidance on just what constituted co-mingling of funds. :(

In my case, I would not have considered doing any different accounts, anyway. By the time I was researching Stafford (student) and PLUS (parent) loans for college I had been advised to have as little as possible in the name of the child. Assets in the child's name would count heavily against us in applying for any of the federal aid for college applications. It was considered far better to have most of the accounts/assets available only in parents' names, not the kids. The more $$ in the kid's name, the less aid that was given.

Have no idea, after all these years, if that has also changed.
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Re: Life Insurance...Social Security also pays?

Post by MrBeaver »

dknightd wrote: Tue Sep 18, 2018 8:00 pm In picking your life insurance amount, consider it is not adjusted with inflation. Like most insurance you hope to never need it, but you want it there just in case.
^^^ This.

I originally thought I wanted a decreasing term policy, since I knew I’d be saving throughout the term. However, when I modeled worst-case scenarios with my current high savings rate, high inflation and low investment returns, and higher than inflation spending growth (In assuming teenagers get expensive), the back-loaded nature of college and more expensive teen years combined with inflation meant that a level term policy was about the right coverage overall. I don’t need quite as much once college starts in this worst case scenario, and if investment returns are better than this low projection, we might hit FI before then at which point I may drop the coverage.

So I did consider SS survivor benefits, but mostly it just reinforced the conclusion that because of inflation, level term ends up being pretty close to ideal.

The purpose of insurance is to cover the family in the worst case scenario. After doing all the math including SSA survivor benefits, normal (reduced) SS for the wife, inflation, and investment growth, it spat out that I needed roughly 10x salary in a bad future scenario, so I got it. I even calculated the future value of all the premiums if I had invested them, and it came out to less than 0.5% of my projected portfolio. I’m happy to delay retirement for two months to know my family is covered.
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Re: Life Insurance...Social Security also pays?

Post by ObliviousInvestor »

On the topic of a representative payee who has conserved or invested benefit payments, here's the CFR section, indicating the same as what zrail indicated above.
https://www.ssa.gov/OP_Home/cfr20/404/404-2060.htm

dm200 wrote: Tue Sep 18, 2018 4:51 pm Others might add/correct this, but I believe that children of a deceased parent would cease getting such benefits if they were legally adopted - perhaps if the surviving parent remarried.
Adoption would not end the child's benefits. See here -- paragraph (b) -- for rules on when child benefits end:
https://www.ssa.gov/OP_Home/cfr20/404/404-0352.htm
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dm200
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Re: Life Insurance...Social Security also pays?

Post by dm200 »

ObliviousInvestor wrote: Wed Sep 19, 2018 6:36 am On the topic of a representative payee who has conserved or invested benefit payments, here's the CFR section, indicating the same as what zrail indicated above.
https://www.ssa.gov/OP_Home/cfr20/404/404-2060.htm

dm200 wrote: Tue Sep 18, 2018 4:51 pm Others might add/correct this, but I believe that children of a deceased parent would cease getting such benefits if they were legally adopted - perhaps if the surviving parent remarried.
Adoption would not end the child's benefits. See here -- paragraph (b) -- for rules on when child benefits end:
https://www.ssa.gov/OP_Home/cfr20/404/404-0352.htm
OK - Thank you. It seems, then, that the folks we know either did not have the correct information (about step parent adopting) or the rules changed since then.
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Re: Life Insurance...Social Security also pays?

Post by ObliviousInvestor »

Regarding child benefits, money not spent on support must be saved in an account with the child named as beneficiary (even though such might result in less financial aid).
https://secure.ssa.gov/apps10/poms.nsf/lnx/0200603010
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dm200
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Re: Life Insurance...Social Security also pays?

Post by dm200 »

ObliviousInvestor wrote: Wed Sep 19, 2018 2:05 pm Regarding child benefits, money not spent on support must be saved in an account with the child named as beneficiary (even though such might result in less financial aid).
https://secure.ssa.gov/apps10/poms.nsf/lnx/0200603010
I believe there are similar rules for older parents (on SS retirement benefits) who have children under 18 (or 19 if still in High School).
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