Life Insurance And Survivor Benefits: How Are They Linked?

Life insurance and survivor benefits are both designed to provide financial support to loved ones after a person's death. Life insurance is a policy that pays out a death benefit to beneficiaries, usually as a lump sum, upon the death of the policyholder. On the other hand, survivor benefits are monthly payments that family members may be entitled to receive from Social Security or other government programs when a worker passes away. While life insurance is often purchased by individuals, survivor benefits are provided by the government and are based on the deceased's earnings and contributions to Social Security. Both life insurance and survivor benefits can be essential in helping survivors maintain financial stability, but it is important to understand their differences and how they may interact to ensure adequate financial planning.

Social Security survivor benefits

Spouses who were living with the deceased or were eligible for certain Social Security benefits on the deceased's record may qualify for a one-time lump-sum death benefit of $255. If there is no surviving spouse, a child who is eligible for benefits on the deceased's record in the month of death can receive this payment. This benefit must be applied for within 2 years of the date of the number holder's death.

Monthly benefit payments are also available to eligible survivors. The amount of these payments will vary based on the deceased worker's average lifetime earnings and other factors. Survivors could receive between 70% to 100% of the benefits that the worker would have received in retirement. Spouses who are aged 60 or older (or 50 or older if they have a disability), or any age and caring for a child of the deceased under 16, may qualify for monthly benefit payments. Unmarried children of the deceased who are under 18 (or up to 19 if a full-time student) or have a disability that began before age 22 may also be eligible. Dependent parents aged 62 or older, as well as surviving divorced spouses under certain circumstances, may also qualify for monthly benefit payments.

It is important to note that Social Security survivor benefits are different from life insurance death benefits. Life insurance death benefits are typically paid as a lump sum by a life insurance company, and the amount can be selected by the policy owner. Social Security survivor benefits, on the other hand, are paid out in monthly instalments and are based on the deceased worker's earnings. While both types of benefits can provide financial support to survivors, they serve different purposes and have distinct features.

Life insurance death benefits

Most of the time, life insurance death benefits are not counted as income and are federal income tax-free. However, it is recommended to consult a life insurance agent and a tax advisor to ensure your coverage works as intended.

Survivorship life insurance is a type of joint life insurance policy that covers two people (usually spouses) under a single policy and only pays out a death benefit once both have died. This type of insurance is typically used for estate planning to leave a benefit for heirs, permanently dependent children, or even a favourite charity.

Pros and cons of joint survivorship life insurance

Joint survivorship life insurance, also known as second-to-die life insurance, is a type of joint life insurance policy that covers two people under a single policy. It is designed for those who want to leave a benefit for their heirs, permanently dependent children, or a charity after both the policyholders have died. While joint survivorship life insurance is typically purchased by married couples, the joint policyholders are not required to be married.

Pros of Joint Survivorship Life Insurance

• More coverage at a lower cost compared to buying two individual policies
• Tax advantages for estate planning
• Inheritance for loved ones
• Policyholders can tap into the policy's cash value while still alive
• Can guarantee that a loved one with permanent care needs is helped after the policyholder's death

Cons of Joint Survivorship Life Insurance

• The surviving partner gets no death benefit when the first person on the policy dies
• Divorce can complicate a second-to-die policy

Military life insurance and survivor benefits

Life Insurance for Active Duty Service Members

Qualifying active-duty service members are automatically enrolled in the Servicemembers' Group Life Insurance (SGLI) program. This policy covers eligibility requirements, updating beneficiaries, and changing or cancelling coverage.

Life Insurance for Veterans

Veterans who had SGLI coverage while on active duty may be eligible for the Veterans' Group Life Insurance (VGLI) program. VGLI covers both active-duty and reserve service veterans. The program includes eligibility requirements, applying for coverage, updating beneficiaries, monthly premium rates, and other VA life insurance options.

Survivor Benefits for Retirees

Military retirees can opt to enrol in an annuity program to provide their survivors with a portion of their pension for life. Active-duty retirees can enrol in the Survivor Benefit Plan (SBP), while retiring reservists can enrol in the Reserve Component Survivor Benefit Plan (RCSBP). These plans offer benefits such as updates to the plan and monthly benefit payments.

Survivor Benefits for Wartime Veterans

The spouse or child of a veteran who served during a qualifying wartime period may be eligible for the VA Survivors Pension. The VA Dependency and Indemnity Compensation (VA DIC) program provides monthly payments to survivors of veterans who die due to service-connected injuries or illnesses.

How to apply for Social Security survivor benefits

When a worker passes away, their family members may be able to claim monthly Social Security payments, or "survivor benefits", that the deceased would have been entitled to receive. These benefits are paid to the widows, widowers, and dependents of workers who have paid Social Security taxes for at least 10 years.

To apply for Social Security survivor benefits, you can call the national toll-free service at 1-800-772-1213 (TTY 1-800-325-0778) or visit your local Social Security office. While an appointment is not required, scheduling one may reduce the time spent waiting to apply.

When applying, you should be prepared to provide certain documents and answer a series of questions. Here is a list of documents that you may need to provide:

• Proof of the worker's death
• Birth certificate or other proof of birth
• Proof of U.S. citizenship or lawful alien status if you were not born in the United States
• U.S. military discharge papers if you had military service before 1968
• For disability benefits, forms SSA-3368 and SSA-827 that describe your medical condition and authorize information disclosure
• W-2 forms and/or self-employment tax returns for the last year
• Final divorce decree, if applying as a surviving divorced spouse
• Marriage certificate

It is important to note that original documents are required for most of the above, except for W-2 forms, self-employment tax returns, or medical documents, for which photocopies are accepted. Additionally, do not delay filing your claim if you do not have all the necessary documents, as assistance will be provided to help you obtain them.

• Your name and Social Security number
• Your name at birth, if different from your current name
• The worker's name, gender, Social Security number, date of birth, date of death, and place of death
• Your date of birth and place of birth (state or foreign country)
• Whether a public or religious record of your birth was made before the age of five
• Your citizenship status
• Whether you have used any other Social Security number
• The state or foreign country of the worker's fixed permanent residence at the time of death
• Whether you or anyone else has ever filed for Social Security benefits, Medicare, or Supplemental Security Income on your behalf
• Whether the worker ever filed for Social Security benefits, Medicare, or Supplemental Security Income
• Whether you or the worker were unable to work due to illnesses, injuries, or conditions within the past 14 months, and if so, the date you became unable to work
• Whether you or the worker had any active military service before 1968, and if so, the dates of service and whether you receive or are eligible for a pension from a military or federal civilian agency
• Whether you or the worker worked for the railroad industry
• Whether you or the worker earned social security credits under another country's social security system
• Whether you qualified for or expect to receive a pension or annuity based on your own employment with the federal government of the United States or one of its states or local subdivisions
• The names, dates of birth or age, and Social Security numbers of your or the worker's former spouses
• The dates and locations of your marriages, and for marriages that have ended, how, when, and where they ended
• The dates and locations of the worker's marriages, and for marriages that have ended, how, when, and where they ended
• The amount of the worker's earnings in the year of death and the preceding year
• Whether the worker had earnings in all years since 1978
• The amount of your earnings for this year, last year, and next year
• Whether the worker had a parent who was dependent on them for at least half of their support at the time of death or when the worker became disabled
• Whether you were living with the worker at the time of death
• The month you want your benefits to begin
• If you are within 3 months of age 65, whether you want to enrol in Medical Insurance (Part B of Medicare)

Depending on the information provided, additional questions may be asked. It is also recommended to bring your checkbook or other papers that show your account number at a financial institution to sign up for Direct Deposit.

Frequently asked questions