Chicago Tribune (Sunday)

Survivor benefits and cashing in life insurance

- Elliot Raphaelson The Savings Game Elliot Raphaelson welcomes your questions and comments at

Q: If I cash in my life insurance policy, will I have to pay taxes on the proceeds?

A: If you do cash in the policy, if the proceeds are greater than the premiums you paid, then the amount greater than the premiums will be taxable. However, you may want to consider a “life settlement.” If you are eligible for a life settlement, you will likely receive more back than if you simply cash in the policy with the issuer.

If you are 65 or older, the face amount of the policy is $100,000 or more, and your health status has changed, you might be able to receive a life settlement. You can call Coventry Direct at 1-800-268-3687 to see if you are eligible. The income tax situation would be the same; what is taxable is the amount you receive that is greater than your premiums.

I recommend that you read the FINRA article on the subject: “Seniors Beware, What You Should Know about Life Settlement­s.” (FINRA — the Financial Industry Regulatory Authority — is a government-authorized nonprofit organizati­on that oversees U.S. broker-dealers.)

Q: If I purchase an I bond and I die before the bond matures, will the interest accrued be taxable immediatel­y? A:

The interest accrued will be taxable whenever the bond is redeemed. If you named a beneficiar­y, the beneficiar­y will have the option of redeeming the bond whenever he/she chooses. If no beneficiar­y is named, your executor would be responsibl­e for seeing that tax for the accrued interest would be paid on the required tax return. At TreasuryDi­rect. gov, the U.S. Treasury website, there is a detailed discussion of the actions required based on the various ownership options selected after death.

Q: My husband died recently. I am 62. I assumed that I would be eligible for a survivor benefit, but the Social Security representa­tive I spoke to said that my income was too high, and I am not eligible. Is that correct? I am still working. Will a survivor benefit impact the benefit I receive based on my work record? A:

Because you are 60 or older, you are eligible for a survivor benefit. If your income from work is $19,560 or lower in 2022, your survivor benefit is not reduced. If you earn more than that amount, then Social Security will reduce your survivor benefit by 50% of the amount above $19,560. So, for example, if you earn $24,560 in 2022, your survivor benefit would be reduced by $2,500.

Once you reach your full retirement age (67), then you can earn an unlimited amount from your employment and you will not be penalized; you would be entitled to the full amount of your survivor benefit. The survivor benefit you are entitled to is based on your age. At age 60, a widow(er) is entitled to 71.5% of the deceased spouse’s full benefit amount at his/her full retirement age. Between age 60 and full retirement age, the benefit is prorated. When you reach your full retirement age, you will be entitled to 100% of your husband’s full benefit amount.

Regarding your second question, a survivor benefit is independen­t from the benefit you are entitled to based on your work record. This means that after you file for a survivor benefit, and receive it, you can file later for a benefit based on your work record.

You are only eligible to receive whichever amount is higher: the survivor benefit or the benefit based on your work record. However, after you reach your full retirement age, you can postpone filing for the benefit based on your work record (even if you are no longer working), and your benefit would increase 8% per year up to age 70.

So, it is possible that your benefit based on your work record would be lower than your survivor benefit, but at age 70, that benefit could be higher than your survivor benefit.

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