Economic Snapshot | Retirement

Social Security provides the primary life insurance protection for most children

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Snapshot for October 5, 2005.

Social Security provides the primary life insurance protection for most children

This year’s debate over Social Security has focused primarily on retiree benefits and has largely neglected the survivors and disability portions of the program.  The fact that two-thirds of retirees receive at least half of their income from Social Security has become well-known.1  Yet many people seem unaware that about one in six Social Security beneficiaries receive survivor benefits as the spouses and dependents of deceased workers and another sixth receive disability benefits.2  In 2003, some 1.9 million children received survivor benefits at an average of $603 per month, totaling $14 billion a year.3   For many families, Social Security provides the only form of life insurance for their children. 

Analysis of the Federal Reserve’s 2001 Survey of Consumer Finance shows that 31% of families with children under the age of 18 have not purchased life insurance in the private market.  This translates into roughly 24.5 million children without life insurance other than Social Security. 

Lower-income families are much more likely to lack private life insurance.  Figure A  shows the share of families in five different income ranges that lack private life insurance. In the lowest quintile (with incomes up to $16,500), 67% of families have no private life insurance for their dependents.  In the second-lowest quintile, more than four out of 10 children have no coverage other than Social Security.  Thus, Social Security provides the only form of life insurance for over half of children in families with incomes below $31,000.  Even for families in the middle income quintile (with incomes between $31,000 and $51,000), more than a quarter have not secured life insurance in the private market.  

Figure A

Social Security provides essential income even for those with private life insurance because benefits from private policies are often quite modest.  Figure B  shows the median value of life insurance policies by income quintiles.  Upwards of 58% of children live in families with $100,000 or less of life insurance protection, whereas Social Security provides a life insurance policy worth around $403,000 for the average young earner with a spouse and two young children.4  For the typical family in the middle income quintile, $50,000 of life insurance protection pales in comparison to the coverage offered by Social Security survivor benefits.

Figure B

This week’s Snapshot  was written by EPI research assistant David Ratner and research director Lee Price.

1. Ettlinger, Michael and Jeff Chapman. 2005. Social Security and the income of the elderly . EPI Issue Brief #206.  Washington, D.C.: EPI.

2. Social Security Facts and Figures. 2005. Washington, D.C.: Social Security Administration.

3. Annual Statistical Supplement to the Social Security Bulletin. 2004. Washington, D.C.: Social Security Administration.

4. Present Values of Benefits to Illustrative Survivors and Disability Cases. 2001. Memorandum to Stephen Goss, Office of the Chief Actuary. Baltimore, Md: Social Security Administration.

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