When you are part of any financial program, it is important that you always make sure to check check any rules and other terms and conditions which come with it. Social Security is one such program where, despite the rules being relatively well known, is one such program where you could find yourself paying out thousands of unnecessary dollars.
Mom of 63 pays out thousands due to little-known Social Security rule
Social Security often has unknown rules which beneficiaries do not know about. Karen Williams, 63, recently found herself stuck between a rock and a hard place where she lost her Social Security benefits and has landed up with a $20,000 bill all because she was unaware of this little-known Social Security rule. After seeing her friends start GoFundMe campaigns to cover funeral costs, Williams decided she did not want her children to have to do that for her. Williams decided to purchase life insurance to ensure that her family would not have to bear the brunt of expenses which occur after one’s death.
However, unbeknownst to Williams at the time, the purchase of the life insurance meant that it went directly against rules which form part of the conditions of receiving Supplemental Security Income (SSI) asset limits. To receive SSI, you may not possess any assets over the value of $2,00. This is because, unlike retirement income from Social Security, SSI is intended to support people who receive little to no income. SSI is conditional of your income status, while your retirement income is only limited to how much you put in while you were working and is not dependent on if you are receiving an income from other sources.
Life insurance puts Williams’ income status over the threshold
Williams’ life insurance policy which took out provided $10,000 for funeral costs and had a cash value of $1,900, pushed her total assets over the limit. The $1,900 from the policy, combined with the $260 in her checking account, exceeded the asset threshold, even though Williams had limited financial means to support herself. Williams is disabled, and relied on SSI income to help her cover monthly expenses and to keep her out of destitution.
“I would have definitely went by the rules,” said Williams, “I didn’t know I was breaking them.” This threshold of asset limitations for SSI has not changed since 1989. Many Americans find themselves in a frustratingly similar situation to Williams. If the limit is adjusted for inflation, beneficiaries like Williams would still qualify for SSI unless they had more than $10,000 in assets.
Williams forces to pay out $20,000
Because Williams took out the life insurance, she now has to pay back the Social Security Administration over $20,000. In addition to this, she also lost her benefits because she breached the rules of receiving SSI. The asset limitation has frequently been subject to complaints by beneficiaries. Not only is the amount severely outdated to provide an accurate reflection of how much money and assets low-income individuals do have access to, but it also creates complications if a beneficiary chooses to get married. Further, these breaches of the rule are often only relayed to recipients months later where beneficiaries have to pay fines with money they do not have.
“The asset limit needs to increase,” said Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, who told Newsweek in an interview. “In 2024, I don’t think $2,000 in a bank account should limit someone’s ability to take out benefits that are often desperately needed throughout the year. That amount certainly could make a one-time difference in an individual’s financial life, but the long-term sustainability that programs like SSI assist with can’t be remedied with so low an amount.” Social security is expected to go through changes in 2025, with a strong possibility that the asset limitation might receive more of a spotlight within the next few years.
