Understanding Social Security’s Lump-Sum Death Benefit.
One of the misunderstandings we encounter at the AMAC Foundation Social Security Advisory Service is the belief that Social Security pays a lump sum benefit to family members in the event of a beneficiary’s death. This is partially true, depending on the definition of the term “family member.” Under current Social Security law, the lump-sum payment — $255—goes to the surviving spouse if living with the deceased. If the survivor was living apart from the deceased but drawing benefits on the deceased’s work record, or becomes eligible for benefits after the death of the spouse, the $255 is also paid to the surviving spouse.
It’s important to note here that if a survivor is already collecting spousal benefits at the time of a spouse’s death, the lump-sum benefit is paid automatically to the surviving spouse…no separate application need be filed.
If there is no surviving spouse, then the lump sum is paid to a surviving child who was receiving benefits on the deceased parent’s work record or a surviving child who becomes eligible to do so after the deceased parent’s death. If there is more than one surviving child, the benefit is divided equally among the surviving eligible children.
Sounds like a lot of carrying on for $255, doesn’t it? Well, there’s been much speculation on why the amount is set at that figure, with folklore maintaining that $255 was once the estimated burial expense. The reality is much different, and the Social Security Administration’s historical records report that the amount was initially set in 1939 at 3.5 % of the individual’s covered earnings, and was intended to compensate for the absence of survivor benefits in the original legislation. The lump-sum amount was capped at $315, although the average paid at that time was $96.93.
Through the years, the lump-sum death benefit issue was re-visited multiple times, with the Omnibus Budget Reconciliation Act of 1981 ultimately stipulating that the benefit would be 3 times the deceased’s Primary Insurance Amount (PIA–the insured’s base benefit at full retirement age) or $255, whichever is lower. Since virtually all PIAs these days, when multiplied by 3, would far exceed $255, that became the standard to this day. In any event, it has nothing to do with the cost of a funeral or, as some rumors have it, the cost of opening and closing a burial vault.