Affordable Life Insurance Protection for Your Family

Death Benefit Term Life Insurance

What is Death Benefit Term Life Insurance and How Does It Work?

Death Benefit Term Life Insurance

Term life insurance is temporary life insurance that lasts for a specific number of years.

Term life is "Pure Protection", not an investment. That means it only provides a death benefit, with NO cash value inside the policy. 

Term life is not an investment, it is only a death benefit policy that pays out the face amount of life insurance upon the death of the insured person, subject to the exclusions listed in the life insurance contract.

Term life insurance provides death benefit protection for a period of one or more years. The death benefit of the policy is paid only if the insured person dies during that period.

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What is a Death Benefit for Term Insurance?

It’s the amount paid to a beneficiary upon the death of an insured person.

The death benefit is the main purpose of a life insurance policy; it's basically what you're paying for when you sign up for life insurance coverage.


What is Term Life Insurance Policy and What are Its Benefits?

One of the biggest benefits of term life insurance is that it helps your family replace your lost income upon your death. Unlike permanent life insurance policies, which remain in effect for your entire life (assuming your premiums are paid on time), term life policies remain in effect for a specific term, or period of time, usually lasting up to thirty years.


What Types of Death Does Term Life Insurance Cover?

Most of the U.S. Term life insurance covers all types of death except suicide in the first two years. This includes death due to accident, illness, accident caused by illness, and old age. After two years, it even covers suicide.


What is Term Life Insurance Policy and What Are Its Benefits?

One of the biggest benefits of term life insurance is that it helps your family replace your lost income upon your death. Unlike permanent life insurance policies which remain in effect for your entire life (assuming your premiums are paid on time), term life policies remain in effect for a specific term or period of time.


What Can a Death Benefit Be Used For?

Your beneficiaries can use the death benefit to pay their bills and finance their lifestyle when you are no longer around to contribute an income. There are no restrictions to its use, which can cover anything from taking a vacation, buying stocks, and even paying taxes.


How Much is a Death Benefit? 

The life insurance death benefit payment is equal to the amount of coverage you purchased when you signed up for your life insurance policy.

The amount of a death benefit can range from $1,000 up to $1,000,000 or more, but the exact amount you should purchase is based on your own specific needs and your personal situation.


When Do You Receive the Death Benefit Payment?

Although the death benefit is paid to the insured's beneficiaries upon death, it doesn't always happen automatically. The insurance company doesn't always know when the policy owner has died, so the beneficiary must alert the insurer by filing a claim on the policy.


Steps to Receive Death Benefit Payout:

  1. Find the insured’s policy document. If you can't find their life insurance policy in their home or digital records, also check the National Association of Insurance Commissioners' Life Insurance Policy Locator Service, which searches a database of known policies. 
  2. Fill out a claims form, also known as a "Request for Benefits.”
  3. Provide a death certificate to the deceased’s insurance agent.
  4. Once the provider confirms the policy holder’s death and approves the claim, you will be paid the death benefit.


When are Life Insurance Death Benefit Paid?

Once you file a claim, you may receive the death benefit in as little as one to two weeks, but it could take as long as 60 days if the life insurance company needs more time to review the claim.


How is the Death Benefit of a Life Insurance Policy Paid?

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 claim form.

Others may choose to convert the death benefit into an annuity, depositing the death benefit payments into an investment account from which yearly annuity payments are made to the beneficiary until the money runs out.


What is an Accelerated Death Benefit?

An accelerated death benefit is paid to policy holders who are still alive, but who have a terminal illness and are expected to pass away soon.

Your life insurance company will require proof of life expectancy in order to qualify. This is can be anywhere from under six months to 24 months depending on the provider. 

Once you meet the qualifications, you can access a portion of the benefits under the accelerated death benefit rider.

Riders are policy add-ons that usually cost extra, but the accelerated death benefit rider is often included at no additional cost depending on your carrier.

The accelerated death benefit can be used to relieve your loved ones of having to foot the bill out of pocket.

However, if you access a portion of the death benefit early, you will reduce the total death benefit, meaning there will be less to disburse to your beneficiaries when you die.


What is the Average Payout for Death Benefits from a Life Insurance Policy?

In the USA, the average payout for death benefits from life insurance is around $167,000. This figure varies from state to state, and year to year.


Is a Death Benefit Considered Taxable Income?

Whether you receive a lump sum or periodic payments, as long as the amount does not exceed the death benefit specified in the policy, the proceeds are not taxable income. However, should you receive more than the stated death benefit, the additional funds are considered interest and treated as income for tax purposes.


When Might a Life Insurance Death Benefit Taxable?

The death benefit is generally not taxable if you paid your premiums using after-tax dollars. 

However, it may be taxable in certain circumstances:

  • If you have an employer-sponsored plan, or group life insurance, or if you paid your premiums with pre-tax dollars.
  • If you put your death benefit in a trust, such as when the beneficiary is a child. Payments to the child for his or her expenses may be taxed as the child's income.
  • If you opted for a permanent life insurance policy with a cash-value component, such as whole life insurance. Any gains you make from the cash value may be taxable if you withdraw them as cash. Check with your financial planner to confirm.


What is a Level Death Benefit Term Life Insurance Policy?

Level Death Benefit is an option available under a term life policy where a life insurance payout is the same through the whole duration of your policy term. It does not matter when the insured person dies, be that in the first or the last year of the policy term. 

So, if you have a 10-year level term policy with a death benefit of $100,000 – the payout would be $100,000 for the death benefit whether you die in the first year of coverage, or the tenth year.


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