Why would Alesandra need less life insurance if Luis dies prematurely as opposed to if she dies first?

Why would Alesandra need less life insurance if Luis dies prematurely as opposed to if she dies first?

• A. Luis would receive all benefits
• B. The survivor benefits increase if she dies first
• C. Alesandra has lower income
• D. Alesandra has higher income, and therefore higher Social Security benefits

Answer: (D)

Understanding how Social Security survivor benefits can reduce the need for life insurance is the key idea here. When one spouse dies, the surviving spouse may collectible survivor benefits based on the deceased spouse’s earnings. If the deceased earned a higher amount, the survivor benefits available to the survivor can be sizable, providing ongoing income that can substitute for some of the income that life insurance would otherwise need to replace. In this case, Alesandra has higher income, which means the Social Security benefits tied to her earnings are relatively strong. If Luis dies prematurely, the financial bridge for Alesandra can rely in part on survivor benefits that would be based on that higher earnings base. That reduces the amount of additional life insurance needed to fill the gap, compared with a scenario where the higher-earning spouse dies first and the survivor would depend on the lower earnings of the other spouse. The other options don’t fit the idea as cleanly. For example, survivor benefits aren’t simply “all benefits” going to one party, and the impact of who dies first on survivor benefits depends on the specific earnings records. The point here is that higher earnings translate to higher potential survivor benefits, lowering the need for extra life insurance.

Understanding how Social Security survivor benefits can reduce the need for life insurance is the key idea here. When one spouse dies, the surviving spouse may collectible survivor benefits based on the deceased spouse’s earnings. If the deceased earned a higher amount, the survivor benefits available to the survivor can be sizable, providing ongoing income that can substitute for some of the income that life insurance would otherwise need to replace.

In this case, Alesandra has higher income, which means the Social Security benefits tied to her earnings are relatively strong. If Luis dies prematurely, the financial bridge for Alesandra can rely in part on survivor benefits that would be based on that higher earnings base. That reduces the amount of additional life insurance needed to fill the gap, compared with a scenario where the higher-earning spouse dies first and the survivor would depend on the lower earnings of the other spouse.

The other options don’t fit the idea as cleanly. For example, survivor benefits aren’t simply “all benefits” going to one party, and the impact of who dies first on survivor benefits depends on the specific earnings records. The point here is that higher earnings translate to higher potential survivor benefits, lowering the need for extra life insurance.