11 June 2013 0 Comments

Do You Have More Life Insurance Than You Know About?

overflowingMost of us only think about Social Security as a retirement plan, but some of the taxes you pay go toward providing survivors insurance for the children and widows/widowers of covered workers.  In fact this may represent the largest life insurance benefit you have.  Take the case of the worker born on June 15, 1975 who died on May 21, 2013 and was earning $100,000 annually.  The spouse is age 32 and their two kids are ages 2 and 4.  Here’s the amount of benefit that could be paid at the worker’s death:

  • Lump sum death benefit:  $255
  • Monthly income for the next 12 years: $4,028
  • Monthly income for the following 2 years: $3,452
  • Monthly income for another 2 years: $1,726

Additionally, the surviving spouse might begin receiving income again as early as age 60.

The total cumulative payout to this family could exceed $700,000!  Social Security pays more benefits to children than any other federal program.

The amount of income paid to surviving children and spouses depends on the age and income of the worker at the time of death and the length of time they were a covered worker under Social Security.  The younger you are, the fewer years of work you need to receive benefits, but no one needs more than 10 years of work to be eligible.  Under a special rule, if you have worked for only 1 ½ years in the 3 years just before death, benefits can be paid to a spouse and children.

Here’s who gets a monthly payment:

  • Natural or adopted children of the deceased worker under the age of 18 (19 if still in elementary or secondary school) or disabled.
  • Widow or widower, any age, caring for a child under age 16.
  • Widow or widower age 60+.
  • Disabled widow or widower age 50 through 59.
  • Dependent parent(s) of the deceased worker, age 62+ for whom more than 50% of support was being provided.

There is a maximum family benefit imposed, so essentially the payout caps out at 3 beneficiaries.  There is an income test for the spouse benefit when caring for children under age 16, so those benefits could be reduced based upon outside earnings of that surviving spouse.

Next…How to determine and maximize your Social Security survivor benefits and integrate them with life insurance planning.

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