insurance

death benefit

The amount paid by an insurance company to the designated beneficiaries upon the death of the insured person.

Example

“The $1 million death benefit would replace her income and pay off the mortgage if she died prematurely.”

Memory Tip

DEATH BENEFIT = what your family receives when you die. The whole point of life insurance.

Why It Matters

Death benefits provide crucial financial protection for your loved ones by replacing lost income and covering expenses like mortgages, debts, and education costs after you pass away. Understanding death benefit amounts ensures your family can maintain their standard of living and avoid financial hardship during a difficult time.

Common Misconception

Many people think death benefits are taxed as income to the beneficiary, but in reality, life insurance death benefits are generally received tax-free by the beneficiaries. Some believe the death benefit is split equally among all family members, when actually the policyholder designates specific beneficiaries who receive the full amount.

In Practice

A 40-year-old parent purchases a 20-year term life insurance policy with a 500,000 dollar death benefit for a monthly premium of 35 dollars. If the parent passes away 10 years later, the insurance company pays the designated beneficiary 500,000 dollars tax-free, which can be used to pay off the remaining mortgage, fund children's college education, and cover living expenses during the family's transition period.

Etymology

DEATH (the insured's passing) BENEFIT (payment received). The BENEFIT paid upon DEATH.

Common Misspellings

death-benefitdeath benefittdeath benfit

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