Why Life Insurance Can Make a *BIG* Difference for Some Retired Couples

Many married couples enter retirement believing they no longer need life insurance. The mortgage is paid off, the children are financially independent, (hopefully!) and the need to replace a working income has disappeared. However, for couples who depend heavily on Social Security benefits to meet their monthly expenses, life insurance can still play a vital role in protecting financial security.

One of the most misunderstood aspects of Social Security is what happens when a spouse dies.

The Social Security Surprise Many Couples Don't Expect

When both spouses are receiving Social Security benefits, they often count on both checks to cover everyday expenses such as housing, utilities, groceries, healthcare, and transportation. Unfortunately, when one spouse passes away, the surviving spouse does not continue receiving both benefits. This spouse only receives a $255 one-time "life insurance" check from Social Security.

Instead, the survivor generally receives the larger of the two Social Security benefits, while the smaller benefit disappears.

For example, suppose a husband receives $2,400 per month and his wife receives $1,600 per month. Together, they receive $4,000 each month. If the husband passes away, the surviving wife would continue receiving the larger $2,400 benefit, but the $1,600 benefit would stop.

Overnight, household income would drop by 40%.

While some expenses may decrease when one spouse dies, many of the largest expenses remain the same. Housing costs, property taxes, insurance premiums, utilities, and maintenance expenses often continue with a small reduction, if any. As a result, the surviving spouse may find it difficult to maintain the same standard of living on a significantly reduced income.

How Life Insurance Can Help

Life insurance can provide a financial cushion that helps replace the lost Social Security income. Proceeds from a life insurance company can be used any way the beneficiary likes, including:

• Supplement monthly income

• Pay off remaining debt

• Cover funeral and burial expenses

• Create an emergency fund

• Help the surviving spouse remain in the family home

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For many retirees, a modest life insurance policy can provide peace of mind knowing that a surviving spouse will have resources available during a difficult transition.

A Simple Example

Imagine a couple loses $1,500 per month in Social Security income when one spouse dies. A life insurance benefit of $100,000 could help offset that income loss for years while providing flexibility for unexpected expenses.

Rather than worrying about how bills will be paid, the surviving spouse can focus on adjusting to life changes without immediate financial stress.

When To Get It

Now! Life insurance is the most obtainable when you're relatively young and relatively healthy. One diagnosis could make you uninsurable. It's usually best for both spouses to apply, naming each other as the beneficiary. Sometimes, you may want to name a trust, but we recommend talking to an attorney to see if a trust as beneficiary would be right for you.

When applying, consider the Social Security check that would be lost and how long the surviving spouse would want that income replaced for. If your check is $2000 per month and you would like it replaced for 5 years, you would want a policy for at least $120,000 ($2000 x 12 months x 5 years = $120,000)

Always make sure that the policy you buy is affordable with only your retirement income. You do not want to buy a policy that will slowly eat away at your life savings. This may mean that you can't buy the ideal amount of coverage, and that's okay! Some coverage is better than no coverage.

The Bottom Line

If your household depends on two Social Security checks to make ends meet, life insurance may still be an important part of your retirement plan. The loss of one benefit can create a significant income gap that leaves a surviving spouse financially vulnerable.

A review of your current income sources, expenses, and insurance coverage can help determine whether life insurance still serves an important purpose in protecting the person you care about most.