What Social Security Pays Survivors

What Social Security Pays Survivors

So what social security pays survivors, you ask? A term life insurance policy can be locked in for 1 to 20 years. It is often the best – and cheapest – best for families who want to provide for the future in the event of the loss of a breadwinner and who want to target the years when their insurance needs will be greatest.

A term insurance policy can often be rolled into a whole life policy later. “Whole life” (also called guaranteed-permanent) insurance provides a death benefit until you reach the age of 90 or 100, as long as you pay fixed premiums – premiums that cannot have unscheduled increases.

Whole life insurance premiums are substantially higher at first than the same amount of term insurance, but term insurance premiums skyrocket as you get older. With whole life, you are betting that you will be around awhile, paying the higher premium at first and then averaging the cost out over a lifetime.

If you are older, the kids have graduated from college, and the mortgage is paid off, the fixed premiums of a whole life policy might be more attractive. These policies also offer an investment opportunity. Here, part of your premium payment is invested into a plan where earnings are tax deferred, so that the policy builds cash value over the years. At some point, the cash value of the policy should be enough to pay your premiums. “Cash-value” policies can help build wealth for you, and possibly your heirs – life insurance proceeds are not subject to income tax, or, for the most part, estate tax.

However, they still need to be carefully evaluated. You should weigh each policy’s return against those you’re getting from your other investments.

What social security pays survivors. Photo by Elena

What to watch out for: Remember, the agent’s computer models showing the projected returns are estimates, and are by no means guaranteed.

Not all policies that appear to provide fixed premiums and cash values are guaranteed-permanent insurance. Universal life, for example, is a form of cash-value insurance that combines term insurance with a side fund that is credited with earnings. Instead of making fixed premium payment, you have the flexibility to decide the size and frequency of your payments to the side fund, which accumulates interest on a tax-deferred basis. You get death-benefit protection as long as the side fund can cover the cost of the insurance.

If you make low payments to the side fund early on, you will have to make sharply higher payments later to maintain death-benefit protection. This flexibility means hat universal life can function more like term or guaranteed-permanent insurance, depending on how you fund it.

Variable life insurance products can be even riskier. You choose among investment options offered by the insurance company – stocks, ponds, fixed-rate funds, etc. Depending upon how the investments perform, you either build up cash value in the policy or not.

Your survivors may be able to count on more than life insurance proceeds in the event of your death. You may qualify to receive nice monthly benefits and have steady earnings during your working life