About 65 million Americans each month receive benefits from the Social Security Administration. While many people think of the benefits program for retirees when they hear “Social Security,” the agency also provides benefits to millions of people with disabilities, surviving spouses, and their dependents each month.
Some Social Security programs require you to have limited financial resources to qualify for benefits. In some cases, life insurance may count toward that overall limit. Knowing the rules can help you maximize your public benefits while still protecting your family financially with througha life insurance plan.
Are you or a loved one receiving Social Security benefits and concerned about how life insurance could affect your eligibility? Here’s what to know.
Does life insurance affect social security benefits?
Retirement benefits through the Social Security Administration, which you can receive beginning at age 62, aren’t impacted by your life insurance or most other assets. Since you put a portion of your paycheck toward Social Security benefits while you’re working, you’re entitled to them later, regardless of your overall financial resources. The size of your monthly payment is based on how much you earned while you were working and the age you are when you begin collecting them. As of 2020, the average monthly benefit for retired workers was $1,544.
SSI and disability benefits
However, Supplemental Security Income, another program from the Social Security Administration, has different rules. Supplemental Security Income provides monthly payments to Americans who are 65 or older, blind, or have a disability. If you’re 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 you unable to perform any substantial activity, or has lasted or is expected to last for at least 12 months.
There are 7.8 million people receiving Supplemental Security Income as of May 2021. You can receive up to $794 as an individual or $1,191 as a couple through the program.
How to qualify for SSI
To qualify for Supplemental Security Income, you need to prove that you have limited income and resources. Income includes:
- free shelter or food
- money you earn from work
- money you receive from other sources, including workers compensation, the Department of Veterans Affairs, unemployment benefits, Social Security benefits, and money from relatives or friends
The Social Security Administration doesn’t count certain types of income, including Supplemental Nutrition Assistance Program benefits or the first $65 of any monthly earnings. Any countable income is subtracted from your monthly benefit, so earnings that are too high can make you ineligible for benefits.
Resources refer to things you own, including:
- life insurance
- vehicles
- land
- personal property
- cash
- bank accounts
- stocks
- U.S. savings bonds
- anything you own that can be used for shelter or food or converted into cash
Just like income, the Social Security Administration doesn’t count certain resources, like the home where you live. As an individual, you are limited to $2,000 in total resources. For couples, the limit is $3,000.
If you own life insurance policies with a combined face value of over $1,500, the Social Security Administration will count them as a resource for the purposes of Supplemental Security Income. Dividends or cash value withdrawals from life insurance policies also count toward your income and resource limits. There are some exceptions that won’t count toward your eligibility, including life insurance policies with a combined face value of under $1,500 or less.
How do my life insurance benefits affect Supplemental Security Income?
The effect of your life insurance on your Supplemental Security Income depends on the type of life insurance you own. If you own a term life insurance policy, you don’t need to worry about the impact on Supplemental Security Income. Term life insurance only has value after your death, so it’s not considered an asset.
On the other hand, permanent life insurance policies, like whole life or final expense policies, can affect your benefits. Any policy with a death benefit or cash surrender value of over $1,500 or more counts as a resource for the purposes of Supplemental Security Income. If your policy earns dividends or you take a loan from its cash value, 50% of your earnings over $65 a month will also count as income.
Receiving a death benefit from someone else’s life insurance policy can also affect your eligibility for Supplemental Security Income. If someone plans to name you as a beneficiary, planning strategies like putting the payout in a trust may help protect your benefits. An attorney or financial professional can help you plan based on your situation.
How does Supplemental Security Income affect buying a life insurance policy?
What about SSI and a life insurance policy? Receiving Supplemental Security Income doesn’t prevent you from buying a life insurance policy. It’s your right to spend your benefits on coverage to protect your family and loved ones.
Bottom Line: Life insurance and social security benefits
Benefits from the Social Security Administration won’t be affected by your life insurance. However, if you qualify for Supplemental Security Income, these benefits may be affected by your life insurance, depending on the type of policy you have.
If you’re thinking about a permanent life insurance policy, make sure you understand how it could impact your benefits. This can get complex, so it’s smart to talk to an attorney or financial advisor first.
At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible.
