LIFE INSURANCE DEATH BENEFITS

In the insurance world, the term “death benefits” often refers to the amount of money that is paid out by an insurance company after a life insurance claim is filed by someone. Of course, that insurance claim is only paid out if it’s valid, filed correctly, and the beneficiaries are still living.

For many, life insurance is used in several different aspects, from an investment option to a tax savings tool to a method of paying for someone’s own funeral services. No matter how you use them, death benefits are helpful for many reasons.

5 THINGS TO KNOW ABOUT LIFE INSURANCE DEATH BENEFITS

Life insurance can be confusing, but filing an insurance claim after a loved one dies is both emotional and difficult to understand.

Who Gets the Death Benefits?
The owner of the life insurance policy (whomever filled out the policy) is who chooses whom will be the beneficiary after the insured person dies. However, if none of the policy’s stated beneficiaries are still alive, the death benefits usually go to the estate of the insured person.

When Are Death Benefits Paid?
After the life insurance company receives a valid claim from the beneficiaries, complete with an original death certificate and properly filled-out paperwork, they are bound to pay the death benefits in a reasonable amount of time. That usually means within a couple months, depending on the state and life insurance company. It’s quite possible beneficiaries will end up getting paid much sooner.

How Much Ends Up Getting Paid?
The face amount of the life insurance policy is usually the amount of the death benefit paid to the beneficiary. That amount, however, can change for several reasons, including a reduction for saving money on insurance costs, and having an increasing death benefit that happens to be based on cash value.

What Are Death Benefits Usually Used For?
Obviously, the beneficiaries that receive the death benefits can use it for whatever they please. But many families choose to help pay for their loved one’s funeral, or to pay off the estate taxes that come with whatever they might have inherited.

How Do Taxes on Death Benefits Work?
Life insurance death benefits are usually not taxed, especially if it was invested in a whole life insurance policy, or another permanent life insurance policy. This is part of the attraction for giving tax-free cash to heirs as part of an estate. In the end, talking with a professional tax adviser is the smartest way to ensure death benefits come tax-free.