The Life And Disability Insurance You Didn’t Realize You Had

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I was on the Social Security website the other day.  I highly recommend you spend a little bit of time there.  You have to make a log-in to see your personalized information, but you’ll eventually need to do that anyway.  I learned a lot of things while I was on there.  It is interesting to see your earnings record.  I see that I made $711 in 1992.  Not bad for a junior in high school.  I also see that I never made more than $40K per year until I graduated from residency 7 years ago.  Be sure to look at your “Medicare Earnings” and not your Social Security earnings, since those are limited by a maximum that is currently $113,700 in 2013.  It is fun to add up your total earnings and compare it to your current net worth.  It’s nice to see I’ve still got 70% of everything I’ve ever earned.

SS Retirement Benefits

The site also estimates your future SS benefits.  It tells me that I’ll get $1784 per month ($21,408 per year) if I retire at age 62, $2662 per month ($31,944 per year) if I retire at age 67, and $3334 per month ($40,008 per year) if I wait until I’m 70.  That all assumes, of course, that I’ll keep earning $117K+ from now until retirement.  If you want to cut back or quit before then, you’ll need to do a more complicated calculation to figure out exactly how much less you’ll get.  Remember that Social Security uses the top 35 years of indexed earnings to calculate your benefit.  If you don’t work at least 35, then you get a bunch of $0 years added in to the calculation.  Still, $40K indexed to inflation sounds pretty good, especially when you consider that my wife gets half of that.  That’s like having a million dollar inflation-indexed annuity.

SS Disability Benefits

I also discovered that I qualify for a disability benefit of $2023.  Now, I carry much more disability insurance than that, but an extra $2K is always nice.  Disability insurance salesman like to argue that it’s much harder to collect from the government than from your high quality disability insurance policy, but for a real disability, I’m not sure I believe them.  I see an awful lot of people on Social Security disability every day and I’m sure I’m just as good as them at hiring an attorney and qualifying for benefits if I’m truly disabled.

Social Security Life Insurance

The one benefit I hadn’t really given much thought to, however, was the life insurance provided by Social Security.  I’m not talking about the bizarre $255 one time payment your family gets when you die.  I’m talking about the Survivorship Benefit.  If I die, my kids and my “spouse caring for my children” get $1685 a month, each, up to a limit of $3932 a month, or $47,184 a year.  When the kids all hit 18, that benefit stops until my spouse hits her full retirement age, at which point she’ll get $2247 a month, or $26,964.  If you’ve got a couple of very young kids when you die, that survivor benefit could pay out more than $800K over the next 17 years.  I never considered that when I bought life insurance, and probably should have.  Now, I’m not cancelling any life insurance policies or anything, but it’s nice to know I’m getting something besides a retirement benefit for that $14,508 and climbing that I pay in Social Security taxes each year.

Have you logged into your online Social Security account?  What do you think of the Social Security survivorship benefit?  Have you or someone you know used it?  Did you purchase less life insurance because you knew it was available?  Comment below!


The Life And Disability Insurance You Didn’t Realize You Had — 32 Comments

  1. I pretty much guarantee you that it easier to collect from SSDI than from a self paid disability policy.

    SSDI – medical records turned into judge without medical training who can decide as he pleases

    Self Paid – thorough medical evaluation post injury/illness and yearly checks on continued qualification.

    I live in a decently affluent area and you would be surprised how many patients I have on full SSDI that somehow have full time jobs as well. To my knowledge SSDI is not “own occupation” and they are all committing fraud.

  2. Thanks for the article – will you be publishing an article soon on laddering term life insurance policies?

    I think you had mentioned that you had one upcoming – I’m getting ready to buy policies for the first time and would love to hear your perspective before taking the plunge, but if it won’t be out for a while I’ll just have to go ahead and do without the advice since I can’t wait much longer to be insured.

        • i dont see extensive laddering as that helpful honestly. Its ok but nothing special. Reason being is that inflation erodes the death benefit any way and there is banding of pricing such that a larger death benefit is cheaper per dollar. Thus just buy one or two million dollar each polices and be done with it. If one wants to break it up in order to reduce risk that any one insurance company goes under then you are typically limited to 300k of death benefit from the state guaranty assoc so thats too much work/cost to get several million in death benefits. For most people one or possibly two 20 year polices would do the trick. Much easier to handle as well and if you happen die within the term your family doesnt have to wonder how many polices you had and where to find them. Your family needs to actively claim the death benefit. Likely isnt worth making it too difficult on them to figure it out.

  3. The spousal survival benefits actually stop when the children reach 16 not 18 and can be restarted as early as age 60 with reduced benefits. The children’s survival benefits last until age 18 or they graduate high school whichever is latet or when they turn 19 if still in high school.

  4. Yes, I have a login and password to the SS website and my personal earnings history. I check it about once per year. We should all check up on our government from time to time (because they are checking up on us hundreds of time per day).

  5. Very interesting to compare numbers with you.
    I am older than you are and my earnings history is therefore “fuller”.
    At early retirement age (62):
    $1,831 a month
    At full retirement age (67):
    $2,681 a month
    At age 70:
    $3,330 a month

  6. I have no worked long enough for my retirement payments to be relevant, but I already have the following benefits.

    Disability – $583 a month
    Your child: $492 a month
    Your spouse who is caring for your child: $492 a month
    Your spouse (starting at full retirement age):$656 a month
    Your total family benefits cannot be more than $984 a month.

    Now add in the fact that I have free $50,000 life insurance policy through work and that is provides a nice base level of benefit. I suspect my benefits will jump quite dramatically after I file taxes for 2013.

    I am not a fan of a lot of insurance policies and this seems to make the case against insurance even stronger.

  7. SS life ins. doesn’t appear to be of much use if you don’t have kids and you and your spouse are nowhere near SS retirement / benefit age.

  8. Keep in mind these benefits are not free. As a guess, everyone involved in this conversation makes ( or will make) well over 200K per year. How much do we pay for these benefits? 15-20K per year? If you are W2 your employer will pay half that. 20K per year for a 2K/month retirement benefit doesn’t seem right.

    • To be fair your paying 20K per year for a retirement benefit AND insurance coverage and if you continue to make 200K a year your benefit will be well over 2K a month.

      Lets say you make 200K a year from age 30 to age 65. Your total pay in without interest and all that is about $700K. Then lets say you live 20 years in retirement at what I am going to guess is going to be closer to $3000 a month or more. Your payout minimum would be $720K and you also received the added protection of SSDI and SSLI as well. SS may not be a “good deal”. But it isn’t horrid given the insurance coverage. Its no worse that whole life.

      • Except I could have invested the same funds privately with a better return. And just as, if not more likely, but the time someone in their 40s now goes to collect, they will be denied as too wealthy, too high an income, etc.

      • Beau,

        Good point regarding the additional benefits. Still not very compelling though. I missed the connection to whole life insurance.

        • My meaning was that in Whole Life you pay a lot up front for very little return unless you hang on to the policy for a very long time.

          I agree that you would get a better return in the private market but that assumes:
          1) you invest
          2) you invest wisely
          Also your return would be significantly reduced by the fact that you were buying the aforementioned insurance.

          I’m not saying SS is the end all be all, but for the vast portion of our population save for the top 5% it is a very good thing and even for the top 5% its not a horrible thing.

      • In the above example the actual expected return would be closer to $3250 monthly. Over 20 years (age 66-86) that would be: $780,000 +/- your life span and + SSDI and SSLI. Yes, overall a poor return but given that companies likely wouldn’t pay people any more if they didn’t have to pay it, probably a good deal for most Americans.

      • “No worse than whole life” isn’t exactly a ringing endorsement!

        Social Security isn’t a good deal for high earners, not doubt about it. It’s Social Insurance. There’s no point in trying to get a good deal on something that you have no choice in paying or not though.

        • Agreed. Its getting your money back plus low quality insurance I suppose. But as you say its “social” insurance. I here a lot of people complain about it but frankly I think its one of the best things this country has ever done. I can’t imagine where most of society would be and therefore where our economy would be without it.

  9. That’s true. The real benefit is for the 95% of the population. Great for them. Just “ok” for the top 5%.

    good point of view.

  10. I just logged into my SSA homepage. Going through this, I realized I don’t remember the last time I got my “green” annual SSA annual statement. It was cool to log in and see what I’m paying for. Although the math isn’t appealing, I’m actually walking away from the experience somewhat pleased. I didn’t even consider these benefits. I just pay tax and say thank you.

    What are you thoughts about the following statement

    “Now, However the Social Security System is facing serious financial problems and action is needed
    soon to make sure the system will be sound… in 2033 the fund will be able to pay 77%…”

    What does 2050 look like?

      • Agreed.

        Or you could look at the future pessimistically in regards to health and get a different picture. MASSIVE explosion in obesity and diabetes in last 10 years with same expected in next 10. All of those diabetics (possibly 1/3 population) are unlikely to see much of their SS benefits even with good health care.

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