A death benefit is a payout to the beneficiary of a life insurance policy, annuity, or pension when the insured or annuitant dies.
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A death benefit is a payout to the beneficiary of a life insurance policy, annuity, or pension when the insured or annuitant dies. For life insurance policies, death benefits are not subject to income tax and named beneficiaries ordinarily receive the death benefit as a lump-sum payment.
The policyholder can structure how the life insurance company pays the death benefits. For example, a policyholder may specify that the beneficiary receives half of the benefit immediately after death and the other half a year after the date of death. Also, some insurers provide beneficiaries with different payment options instead of receiving a lump sum. For example, some beneficiaries elect to use their death benefit proceeds to open a non-qualified retirement account or elect to have the benefit paid in installments.
Individuals insured under a life insurance policy, pension, or other annuity that carries a death benefit, enter into a contract with an insurer at the time of application. Under the contract, a death or survivor benefit is guaranteed to be paid to the listed beneficiary, so long as premiums are paid while the insured or annuitant is alive. Beneficiaries have the option to receive death benefit proceeds as a lump-sum payment or a continuation of regular payments.
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