WHAT IS AN Additional Death Benefit
BREAKING DOWN Additional Death Benefit
Additional death benefit is an extra layer of payment in the event that a predefined situation occurs. For example, if an individual has a life insurance policy worth $1 million, their beneficiary receives the $1 million dollars, but this beneficiary may qualify for additional money depending on the circumstances of the policyholder’s death as outlined in the life insurance contract. Additional death benefits can occur for a variety of reasons, and in some policies beneficiaries can receive an extra $1 million if the policyholder dies within a certain age range.
Traditional or standard death benefits pay out to the beneficiary of a life insurance policy but can be anything from a percentage of the annuitant's pension to a large lump-sum payment from a life insurance policy. 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 while the insured or annuitant is alive.
Life Insurance and Variation in Death Benefits
Life insurance refers to the contract between an insurer and a policyholder in which the insurer guarantees payment of a death benefit to named beneficiaries upon the death of the insured. Beneficiaries have the option to receive death benefit proceeds either in the form of a lump-sum payment, or as a continuation of monthly or annual payments. Death benefit payments are free of ordinary income tax, while annuity beneficiaries may pay income or capital gains tax on death benefits received. Traditional life insurance benefits include two distinct kinds: the level death benefit, which pays out the same amount whenever the insured person dies, and an increasing death benefit. 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.
Life insurance provides financial protection to surviving dependents after the death of an insured individual. Along with the traditional lump sum death benefits, insurance companies offer policyholders customizable policies to accommodate their personal needs. Some of the most common life insurance riders or additions are the accidental death benefit rider, which provides additional life insurance coverage in the event that the insured's death is accidental, and the accelerated death benefit rider, which allows the insured to collect a portion or all of the death benefit.