Death Benefit

What is 'Death Benefit'

Death benefit is the amount on a life insurance policy, annuity or pension that is payable to the beneficiary when the insured or annuitant passes away. A death benefit may be a percentage of the annuitant's pension. For example, a beneficiary might be entitled to 65% of the annuitant's monthly pension at the time the annuitant passes away. Alternatively, a death benefit may be a large lump-sum payment from a life insurance policy. The size and structure of the payment in either a pension or a life insurance policy is determined by the type of contract held by the annuitant at the time of death. Also known as "survivor benefit."

BREAKING DOWN 'Death Benefit'

Individuals who are insured under a life insurance policy, a pension or other annuity product that carries a death benefit enter into a contract with a life insurance carrier at the time of application. Under an insurance contract, a death benefit or survivor benefit is guaranteed to be paid to the listed beneficiary so long as premiums are satisfied during the time the insured or annuitant is alive. Beneficiaries have the option to receive death benefit proceeds either in the form of a lump sum, one-time payment, or as a continuation of monthly or annual annuity payments paid directly to them.

Beneficiaries of life insurance policies receive the death benefit payment free of ordinary income tax, while annuity beneficiaries may pay income or capital gains tax on death benefits received. In either case, proceeds paid through life insurance or annuity death benefits avoid the cumbersome, often costly process of probate which ultimately leads to timely payments to survivors.

Death Benefit Claims

After an insured individual or annuitant dies, the process of receiving a death benefit from a life insurance policy, pension or annuity is relatively straightforward. Beneficiaries first need to know which life insurance company holds a policy or annuity for the deceased. Policy information is not kept within a national insurance database or other central location; instead, it is the responsibility of each insured to share policy or annuity information with beneficiaries. Once the insurance company is identified, beneficiaries are asked to complete a death claim form indicating the policy number, name, social security number and date of death of the insured, and payment preferences for the death benefit proceeds. Death claim forms are submitted to each insurance company with which the insured or annuitant carried a policy, along with a copy of the death certificate. If multiple beneficiaries or survivors are listed on a policy or annuity, each individual is required to complete a death claim form to receive the applicable death benefit.