What Is A Death Benefit In A Life Insurance Policy?

Many parents or legal guardians often wish to ensure their children or wards will be financially secure after they die. One effective way to do this is by acquiring a life insurance policy that pays out something called “death benefits.”

Death benefits are often associated with life insurance policies. It’s important to understand exactly what these types of benefits are if you expect to give or receive them. A death benefit is a sum of money that is paid out to one or more entities or “beneficiaries” once the insured dies.

To receive these benefits, beneficiaries are required to submit proof of death — as well as proof that the deceased was covered — to the insurer. In the case of a life insurance policy, death benefits are typically paid out as a lump sum (although you can choose payment installments if you want) and aren’t subject to income tax. This is what makes death benefits in these cases different from benefits paid out to annuity beneficiaries, which are sometimes taxable. It’s also important to note that a life insurance beneficiary is different from an heir, as the former is designated in an official document while the latter is simply assumed.

Requirements For Death Benefits Payouts

If you’re listed as a beneficiary of a life insurance policy, the first thing you must know before receiving death benefits is the name of the insurance company through which your deceased loved one acquired a policy. The next step involves submitting a death claim form and providing basic information such as the insured’s name, date of death, policy number, Social Security number, and payment method. You will also likely need to submit a copy of the deceased’s certified death certificate that lists the cause of death.

Revocable vs. Irrevocable Beneficiaries

There are two types of beneficiaries of life insurance policies: revocable and irrevocable. Revocable beneficiaries can be easily changed without permission from anybody unless the beneficiary in question is the insured’s spouse and the insured resided in a common property state. Meanwhile, irrevocable beneficiaries cannot be removed from a policy or have their share of death benefits changed without their consent.

Other Things to Know About Death Benefits

Here are other key considerations to know about death benefits:

• The policyholder can divide up benefits any way they choose. If there is one other beneficiary besides you, that doesn’t always necessarily mean you will receive half of all death benefits.
• You can use your death benefits any way you want. Death benefit payouts from life insurance policies don’t come with conditions or stipulations. You can use this money to pay regular living expenses like rent, food, and utilities, to pay off your mortgage, spend it on a vacation, or save for retirement or your child’s education.
• In some cases, a portion of benefits can be paid before death. Sometimes, a life insurance policy has something called an Accelerated Death Benefit rider. This optional provision allows an insured with a terminal illness to use part of the death benefits before they die (e.g. to pay for lifesaving medical care). The insurance company will often require a medical provider to show proof of life expectancy in these cases. In situations like these, (among others) the total amount you receive in death benefits may decrease.
• Beneficiaries may be charities or other similar entities. Recipients of death benefits are not always individuals. They can also be charities or other 501(c)(3) organizations, as well as businesses and family trust funds.

Speak With Matador Insurance Services About Life Insurance

Contact the agents at Matador Insurance to learn more about death benefits associated with life insurance policies. Our team has extensive knowledge of and experience with life insurance and can guide you through the process of understanding and receiving death benefits. If you’re the beneficiary of such an insurance policy, we know exactly what situation you are in and can help you understand each aspect of this process. Speak with Matador Insurance by contacting us online today for more information.