Definition of Death Benefit on Life Insurance Policy

Life insurance death benefits are easy to comprehend but can create many complex situations for the beneficiaries. Knowing your options and considering the consequences of your choices will help you make the best possible decisions regarding your life insurance death benefit.

Definition

According to the American Heritage Dictionary of the English Language, a death benefit is "insurance money payable to a deceased person's stipulated beneficiary."

Beneficiaries

Beneficiaries are those individuals or organizations you choose as the recipients of your insurance policy proceeds if and when you die. Primary beneficiaries will be first in line to receive the money. If your primary beneficiaries are unable or unwilling, the proceeds are distributed to the contingent beneficiaries.

Lump Sum Benefit

Life insurance proceeds are typically paid to beneficiaries as a lump sum. The entire amount of the death benefit is divided up based on predetermined percentages and distributed to the beneficiaries.

Annuity Benefit

Death benefit recipients are also given the choice to receive the money as a steady stream of payments over a period of time.

Taxation

Life insurance death benefits are tax-free distributions to the beneficiaries. Regardless of the manner in which the recipient takes possession of the money, no income taxes are ever due on the death benefit.

References

• American Heritage Dictionary
• Maximizing Life Insurance Benefits