Life insurance protects your loved ones from the risk of losing the financial support you provided when you die. If you’re covered, the life insurance company pays your beneficiaries a sum of money called the death benefit. The money can be paid out as a tax-free lump sum or annuity and can range from a few thousand dollars to millions of dollars. Show
Most likely, this death benefit payout is why you’re buying a life insurance policy in the first place — to ensure that your loved ones don’t financially suffer if you die unexpectedly. Key takeaways
Who gets the death benefitThe life insurance death benefit is paid out to your policy’s beneficiaries. You can name more than one beneficiary on your policy and can even determine the exact percentage of the death benefit that each beneficiary receives. Anyone who isn’t listed as the beneficiary on your policy cannot receive the death benefit — whether it be your spouse or a lender you owe a debt to. You should avoid naming children as your policy’s beneficiary because they can’t legally receive the money until they reach the age of majority in your state. Instead, you can direct the life insurance proceeds to a trust and dictate how the funds are used and when. You should also periodically update your beneficiaries, and your overall policy, with every big life event. → Learn more about life insurance beneficiaries How much is paid outThe death benefit amount paid out is the coverage amount you choose when you buy your policy. If you buy a $1 million life insurance policy, your beneficiaries will receive a $1 million lump sum. We recommend a death benefit amount of 10 to 15 times your annual income: enough to cover a variety of situations, including end-of-life expenses like the cost of your funeral or cremation, everyday expenses, or the cost of your children’s college tuition. When you’re purchasing life insurance coverage, you’ll also want to take into account everything you pay for to figure out how much the death benefit should be. That could include payments on an auto or mortgage loan. → Calculate how much life insurance coverage you need When and how the death benefit is paid outThe death benefit is paid to your beneficiaries after you die, but it doesn't happen automatically. The life insurance company isn't immediately informed when a policyholder dies, so the beneficiary must alert them by filing a death claim. Most people choose a lump-sum payment, usually in the form of a check or a direct deposit into their bank account, which is listed on the death claim form. Others may choose to convert the death benefit into an annuity, depositing the death benefit into an investment account from which yearly payments are made until the money runs out. Annuities can be subject to taxes. A lump-sum payout works best for most budgets, but a certified financial planner can help you make the right decision for your circumstances. → Learn more about life insurance annuities Steps to get the death benefit:
Once your beneficiaries file a claim, they could get the death benefit in as little as one to two weeks, but it could take as long as 60 days. If there is any indication of intentional fraud, the life insurance company may also investigate further before paying out the death benefit. How the death benefit amount can decreaseFor the most part, your life insurance policy’s beneficiaries will receive the total death benefit amount. But if the insurance company discovers that you intentionally lied or disclosed false information, it may reduce the death benefit by the amount in premiums that you would have paid had you represented yourself truthfully. It may even cancel your policy altogether and deny your beneficiaries the death benefit. If you bought adjustable life insurance or cash value life insurance, the death benefit paid out may be different than the coverage amount you originally bought. The death benefit is one of the most important parts of a life insurance policy — it’s the financial support your beneficiaries receive when you’re gone. Working with a financial advisor and laying out a strategy to get the right amount of death benefit is the best way to protect your family’s finances. → Learn more about how to spend the life insurance death benefit The death benefit is the lump sum paid out to the policy's beneficiaries after the insured dies. The beneficiary listed in the policy needs to file a death claim form with the life insurance company and provide proof that the policyholder has died. Do you pay taxes on the life insurance death benefit?Generally, a traditional life insurance policy’s death benefit is paid out un-taxed. Benefits paid in installments or paid to an estate might be taxed. What happens when you inherit life insurance?You should consult with a certified financial planner to map out how to strategically spend the lump sum. They can help you determine how much to allocate towards your current expenses, retirement, and investments. Authors
Nupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake. Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock. Expert reviewer  Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius. Questions about this page? Email us at . What is a death benefit and who receives it?The death benefit is one of the most important parts of a life insurance policy — it's the financial support your beneficiaries receive when you're gone. Working with a financial advisor and laying out a strategy to get the right amount of death benefit is the best way to protect your family's finances.
What is the difference between cash value and death benefit?The cash value is different from the policy's death benefit. While the cash value is a savings that accumulates over time, the death benefit is the amount of money that your designated beneficiary will receive upon your death. If you cancel your life insurance policy, you will get the accrued cash value.
How is the death benefit calculated?Survivors Benefit Amount
Widow or widower, full retirement age or older — 100% of the deceased worker's benefit amount. Widow or widower, age 60 — full retirement age — 71½ to 99% of the deceased worker's basic amount. Widow or widower with a disability aged 50 through 59 — 71½%.
What is a death benefit option?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.
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