Social Security retirement benefits can be an important part of your budget when you partially or fully retire. But your Social Security benefits can be impacted if you receive other income. If you receive a life insurance benefit, it’s important to understand how that benefit might affect your Social Security payments.
If you receive a life insurance policy benefit, that benefit is considered to be unearned income. Since Social Security isn’t impacted by unearned income, then you will continue to receive your retirement benefit.
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While you can receive both life insurance and Social Security retirement benefits, things get a little trickier if you’re receiving a life insurance benefit and Social Security disability benefits (SSDI). If you receive a life insurance benefit or even if you take a loan out against your own life insurance policy, you might receive a lower Social Security disability benefit or even receive no benefit at all.
For example, to receive SSDI benefits, you can’t have countable resources of more than $2,000 as an individual. Since your death life insurance benefit is considered to be a countable resource, if that benefit is more than $2,000, your disability benefits would be reduced or they would stop entirely. As a general rule of thumb, you can expect every $1 of earned income, such as money received from a life insurance benefit, to reduce your SSI payments by $0.50. To qualify for SSDI payments again, your countable resources would need to drop below that $2,000 threshold.
But, this scenario only applies if you’re receiving SSDI and haven’t yet reached retirement age. Once you reach retirement age, then you can receive a life insurance benefit and keep your existing Social Security benefits.
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Yes, but the type of life insurance you have matters. Some life insurance types, like permanent life insurance, have a cash value that can increase with time. For example, a life insurance loan or permanent life insurance dividends are considered to be countable resources, so your own life insurance policy could technically increase your resources to the point where your SSI benefits are decreased or terminated.
Alternatively, other types of life insurance like term life policies don’t have that cash value component, and their value remains the same during the entire term. A term life policy isn’t considered to be a countable resource, so you could buy this insurance without experiencing any changes to your SSI payments.
Whether life insurance affects Social Security disability and retirement benefits is just one consideration when shopping for life insurance. It’s also important to consider each policy type, its term, its benefits, and its rates. You can get a free personalized life insurance quote today to start exploring different life insurance options.
Paige Cerulli Paige Cerulli is a freelance content writer and journalist who specializes in personal finance topics. She graduated from Westfield State University and brings more than a decade of professional writing experience to the ConsumerCoverage team. Paige’s work has appeared in outlets including USA Today, Business Insider, and more.
