Whenever topics such as retirement or financial stability are mentioned, people think of Social Security. Nevertheless, a majority of the Americans remain ignorant of various possibilities offered by this federal program. A common question that arises is does social security offer life insurance? The short answer is yes, but not like a life insurance.
Social Security is primarily recognized for offering benefits to workers when they retire. But it is not only an income after retirement that is provided by the program. It also comprises of disability and most critically in this aspect, survivor benefits. These survivor benefits work more or less as an insurance policy in which sum gets paid out to families when an earner dies.
Social Security does not offer life insurance like an insurance policy, it does offer a form of life insurance: the survivor benefits program. These benefits can be of immense help by offering some form of economic support to families that have lost the source of income.
Survivor Benefits Explained
Survivor benefits involve services that are offered to surviving relatives of many workers who acquired adequate Social Security credits from their working years. These benefits can be considered as insurance of one’s life provided by the government.
The members listed below are qualified for survivor benefits:
- Widows or widowers
- Divorced spouses
- Unmarried children under 18
- Children of any age who were disabled before age 22
- Dependent parents aged 62 or older
How Much Can Families Receive?
The amount of survivor benefits a family can receive depends on several factors, including:
- The prior earnings record of the deceased worker
- The gender of the deceased at the time of death
- One’s relatedness of the survivor to the deceased
- Survivor age and other conditions
In general, a surviving spouse who has reached full retirement age can collect 100 % of the worker’s basic Social Security amount. A widow/widower who is at least 60 but no full retirement age can receive 71 % of the deceased spouse’s benefit amount. 5% of the deceased worker’s basic benefit up to 99% of the basic benefit.
Comparing Social Security Survivor Benefits to Traditional Life Insurance
No premiums: It does not entail that you pay for the actual coverage separately from the normal premium that will be offered to you. Provided as a component of the Social Security taxes that employers take from employees’ wages.
No choice in coverage amount: It is all funds bestowed by the Social Security Administration according to the earnings history of the deceased, not by the option of the latter.
Eligibility requirements: The rules covering who is entitled to survivor’s benefits is that the deceased has accrued sufficient the Social Security credits, which is different to that pertaining to ordinary life insurance.
Duration of benefits: The survivor benefits such as in the case of minor children, it comes to an end when the child attains a specified age. Conventional insurance coverage tends to have settlements made in one large payment.
Taxation: The survivor benefits under social security are taxed but on the other hand life insurance beneficiaries are not taxed.
Need of Social Security Survivor Benefits
Social Security continues to assist millions of families in their quest to achieve financial security by supplying survivor benefits. In the findings of the Social Security Administration, nearly every fifth today’s 20-year-old will die before he or she turns 67. In many cases, Social Security survivor benefits may be the only source of life insurance protection available to these families.
Limitations of Social Security as Life Insurance
Benefit caps: It is also important to note that the amount of money that is payable to the family under the survivor benefits is not guaranteed to be adequate enough for the protection of the family’s standard of living.
Work credits requirement: In case the earnings of the deceased were inadequate due to not working for long enough to accrue eligible social security credits, then the survivors might not qualify for benefits.
Remarriage restrictions: Those drawing Social Security who marry again before the age of 60 years or 50 years if the person is disabled can only get survivor benefits if the later marriage dissolves.
Reduction for early claiming: If the survivors file for benefits before this age of sixty-two, their benefits will be permanently lowered.
Supplementing Social Security with Private Life Insurance
Due to these drawbacks, most financial planners advise people to augment the Social Security survivor benefits with private life insurance. This can produce an extra layer of cash security and more options in regard to the quantity of premiums available and the recipients of such benefits.
Conclusion
Therefore, does Social Security offer life insurance? Despite having no conventional life insurance policies, the company’s survivor benefits program is a sort of life insurance, which assists in protecting the family that has lost a breadwinner. It is however crucial for people receive understand what is covered and what is not by this type of plans.
Evidently, for a large number of Americans, Social Security survivor benefits remain the primary source of income on the death of their partner. However, these benefits may not be sufficient to help all the families especially those of the higher income bracket or with more responsibilities to meet. As with any part of managing their financial future, it is wise to consult with a trained financial planner to decide whether Social Security survivor benefits are enough for the family or if more life insurance is required.
Lastly, it is also important to note that the survivor benefits of Social Security are just a portion of a larger social security. These can in fact be of immense help but these should best be looked at as the building block to developing a good solution to the protection of the financial needs of a family. People should draw a financial plan that encompasses different components like Social Security and possible private life insurance coupled with other ones like benefits, savings, operational, and investment funds. This likely guise strategy is useful for strengthening the family’s need planning, so families can be ready for different events and remain financially sound even in the face of adversity.
