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.

RELATED TERMS
  1. Straight Life Annuity

    An insurance product that makes periodic payments to the annuitant ...
  2. Level Death Benefit

    A life insurance payout that is the same whether the insured ...
  3. Annuitization

    The process of converting an annuity investment into a series ...
  4. Guaranteed Death Benefit

    A benefit term that guarantees that the beneficiary, as named ...
  5. Additional Death Benefit

    An amount that is paid to the beneficiary of a life insurance ...
  6. Guaranteed Earning Increase Death ...

    A type of option that annuitants can purchase for their retirement ...
Related Articles
  1. Managing Wealth

    Life Insurance With an Increasing Death Benefit

    Why buy a life insurance policy with an increasing rather than level death benefit
  2. Markets

    Explaining Types Of Fixed Annuities

    Learn about this popular retirement tool, its pros and cons and how annuities work to create a guaranteed regular stream of retirement income.
  3. Personal Finance

    Life Insurance: How Long Does It Take To Get Paid?

    How to file for a life insurance payout – and how long it takes to receive it. Plus, new ways to plan for payments that provide an income stream.
  4. ETFs & Mutual Funds

    Annuities

    What annuities are: Insurance products that provide a source of monthly, quarterly, annual or lump sum income during retirement. Pros: Tax-deferred growth of earnings; no annual contribution ...
  5. Personal Finance

    Use Life Insurance to Help Those With a Disability

    Why and how to use permanent life insurance to help provide for a family member with a disability or special needs
  6. Markets

    Deciphering Deferred Annuity Designations

    Tax deferred annuities can be complex arrangements. Discover some of the situations that arise when an owner or annuitant dies and how to reduce tax liability if you're the beneficiary.
  7. Financial Advisor

    Tips for Helping Clients with Life Insurance Needs

    Life insurance needs will likely change over the client’s lifetime and again financial advisers can provide an objective sounding board.
  8. Personal Finance

    How Life Insurance Payouts Work

    Life insurance provides peace of mind to policyholders and their loved ones.
  9. Retirement

    Why the Wealthy Should Buy Lots of Life Insurance

    Wealthy clients have an enviable problem — managing, preserving and growing wealth. Properly structured life insurance can help with these goals.
  10. Financial Advisor

    Advising FAs: Explaining Life Insurance to a Client

    Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death.
RELATED FAQS
  1. Does an annuitized annuity have a death benefit?

    If an annuity is "annuitized" for regular annual payments, does the annuity have a death benefit? This is especially important ... Read Answer >>
  2. Do beneficiaries pay taxes on life insurance?

  3. What is the difference between the death benefit and cash value of an insurance policy?

    Understand the difference between the various components of a life insurance policy including the death benefit and a policy's ... Read Answer >>
  4. What happens to my annuity after I die?

    Understand the different types of annuity payment plans and what payments or additional benefits are payable to your beneficiaries ... Read Answer >>
  5. What are the distribution options for an inherited annuity?

  6. What will happen to my father's pension if he never added a second beneficiary?

    My dad worked at a company for 40 years where he had a pension. My mom passed away about a year after ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center