What Is an Additional Death Benefit?

An additional death benefit is a clause found in certain life insurance contracts. It entitles the policyholder to receive an additional lump sum in the event that the policyholder should die for a reason that has been pre-approved within the insurance contract. For example, a life insurance contract with a death benefit of $1 million may specify that an additional death benefit of $500,000 would be paid should the policyholder die from natural causes before the age of 40.

Depending on the terms of the life insurance contract, additional death benefits may also be paid in the form of an annuity payment stream.

Key Takeaways

  • An additional death benefit is an insurance contract clause that provides an increased death benefit if the death in question meets certain specified conditions.
  • In exchange, the policyholder must pay higher monthly insurance premiums.
  • For example, a life insurance contract with a death benefit of $1 million may specify that an additional death benefit of $500,000 would be paid should the policyholder die from natural causes before the age of 40.
  • Additional death benefit clauses are just one of the many modifications—or “riders”— in which insurance contracts can be customized to meet the policyholder’s needs.
  • Policyholders often opt for such clauses in order to secure greater peace of mind, in cases where a particular type of death might be particularly harmful to their heirs and family members.

How Additional Death Benefits Work

Those who purchase life insurance often wish to protect their families or heirs against the financial hardship that could arise if they die prematurely. If such a death were to occur, their beneficiaries would receive a death benefit in the form of a lump-sum payment or a stream of regular annuity payments.

In some cases, life insurance contracts will include special provisions specifying that an additional death benefit will be paid if the policyholder’s death meets certain predefined conditions. From the perspective of the policyholder, paying to have an additional death benefit clause included in their contract might be advantageous if they wish to protect their beneficiaries from certain specific risks.

For example, a single parent with young children may feel that their children would be particularly at risk in the unlikely event that they should die at a young age, such as 35 or 40. 

Important

Traditional life insurance benefits include two distinct varieties: the level death benefit and an increasing death benefit. The level death benefit pays the same amount whenever the insured person dies. However, an increasing death benefit includes the lump sum plus any accumulated cash value, with the growth of the cash value depending on the amount of premium paid.

Additional death benefit clauses are just one of the many modifications—or “riders”— in which insurance contracts can be customized to meet the policyholder’s needs. For instance, one of the most common life insurance riders or additions is the accidental death benefit rider, which provides additional life insurance coverage in the event that the insured's death is accidental.

Meanwhile, the accelerated death benefit rider allows the insured to collect a portion or all of the death benefit. The accelerated death benefit rider is sometimes used by policyholders that have been diagnosed with a terminal illness and want to receive part of the benefits to cover the cost of their treatments.

Example of an Additional Death Benefit

John is a single father with two young children. As a young professional in his early 30s, John is concerned that, in the unlikely event that he should die while his children are still too young to support themselves financially, the impact on them would be particularly devastating. Therefore, he decides to insure against this risk by purchasing a life insurance policy with an additional death benefit clause. 

In exchange for an increase to his monthly premiums, John ensures that, if he were to die prematurely, his kids would receive a particularly large insurance payout that would be sufficient to financially support them for many years. From the perspective of his insurance provider, the risk of John dying in this manner is low enough that providing this type of insurance can be profitable and sustainable if done as part of a diversified insurance portfolio.