Are survivor benefits different from death benefits?

Anchor Links

• What are death benefits?
• What are survivor benefits?
• Do you need both?

What are insurance death benefits?

An insurance death benefit or life insurance benefit is the amount an insurance policy will pay to your beneficiaries when you pass. Depending on your policy, this can range from a small amount to cover final expenses to sums intended to protect your family and their lifestyle. 

For example, a $500,000 whole life insurance policy means that as long as you pay the premiums, your beneficiaries will receive that amount as a life insurance benefit.  

Who gets your death benefit when you die?

You can split your life insurance benefit up however you choose. It usually goes to one (or more than one) family member, but it can also go to a nonfamily member, a trust, a charity, or an estate. These are called designated beneficiaries, and you select them when you start your policy. You can change them later if you like.

Related: What is a beneficiary?

Does a death benefit count as income?

Most of the time, life insurance death benefits are not counted as income and are federal income tax-free. It’s one of the biggest reasons why a life insurance policy is so important to your financial planning. As always, be sure to consult a life insurance agent and a tax advisor to make sure.

What are Social Security survivor benefits?

If you have been working and paying into Social Security during your lifetime, your family may be entitled to some of your payments after you pass. They should notify Social Security as soon as possible to see if they qualify and can begin receiving benefits. 

Who is eligible for Social Security survivor benefits?

Survivor benefits are usually paid to the worker’s children and/or surviving spouse, and in some cases the worker’s parents. Under certain circumstances, a divorced spouse, stepchildren, grandchildren, and others may also be entitled to benefits.

How much do survivors receive?

That depends on how much and how long the worker participated in Social Security. The more that was paid into the program, the higher the benefits can be. Depending on a survivor’s age, relationship to the deceased, whether they are receiving Social Security themselves, and other limitations, the survivor could receive 70% to 100% of the benefits that the worker would have received in retirement.

Will this be enough for my family?

Social Security survivor benefits can help, but, depending on the situation, they likely will not be enough for surviving family members to maintain their lifestyle. Creating a financial plan for your family’s stability should include a diverse range of investments and a customized life insurance policy.

How do I learn more about Social Security survivor benefits?

While our agents can help you with general information and financial planning advice, to learn more or see if you qualify for survivor benefits, you should head to the federal Social Security survivor benefits page.

Do I need life insurance if I have Social Security?

Everyone’s situation is unique, but for most people, the answer is yes. Survivor benefits will no doubt help your family if you have paid in enough and they are eligible, but the right life insurance policy can cover so much more. If protecting the financial stability of your family after you are gone is important to you, a life insurance policy can give you peace of mind. 

How much coverage should I have?

That depends on where you are in your life and who depends on you financially. Early on, you’ll likely want a safety net for your family that replaces your income for a number of years, so they can continue to be financially comfortable if you pass. As you approach retirement, your needs could change, and you may want to focus on covering final expenses, medical costs, and debts. 

What life insurance options are there?

There are many different types of life insurance policies to meet your individual needs. Most fall into two broad categories: 
 
Term life insurance is designed to cover a set period of time, often between 5 and 20 years. After the term is up, premiums will go up every year if you choose to continue the policy. If you discontinue the policy, benefits will not be awarded. Because of this, term policies are generally used to cover specific needs that will change with time, like a mortgage or income replacement. You can often upgrade term insurance to a more permanent solution later on.

Whole life insurance, on the other hand, is coverage that lasts a lifetime, as long as premiums are paid. In exchange for generally higher premiums than term life, these policies accrue cash value, and their cash value can even be accessed to supplement your retirement savings¹. If you’re looking for something that is guaranteed to grow and be there when your family needs it, you should consider whole life. 

At New York Life, we have a full range of customizable life insurance policies to meet your specific needs. We want to make sure that you get a policy that covers exactly what you want and nothing more. That way, you can keep costs down while ensuring your family has all the protection they deserve. If you have any questions whatsoever, please reach out to our experienced agents for expert advice.

¹  Accessing the cash value of a whole life policy will reduce the available cash surrender value and the death benefit.