How does a death benefit in a life insurance policy work?
A death benefit is the primary reason someone purchases a life insurance policy; it's the amount of money your insurer will pay out to your beneficiaries if you die during the policy's term. If you borrow from your policy's cash value and don't repay that life insurance loan before you die, the amount you owe will be taken out of your death benefit.
Note that if your policy expires before you die, as may happen with a term policy, your beneficiaries won't receive a death benefit — unless you purchase another policy that's in effect when you die. If you want your life insurance to be able to pay out the death benefit no matter when you die, you'll want a permanent policy. Learn about the difference between term and permanent life insurance.
The cost of your policy is determined by factors like your age, medical history, policy type, and the face amount you select. The greater the face amount, the higher your premium. Consult with a financial advisor or a licensed life insurance agent to determine the right amount of coverage based on your budget, ongoing financial expenses, and the number of people you hope to support via your death benefit. Your benefit amount may also depend on your eligibility, as determined by the insurer when you apply for a policy.
What is a death benefit beneficiary?
In most cases, the beneficiaries of a death benefit from life insurance are your partner, children, or other close loved ones, though you can technically name any person or organization as a beneficiary. When naming more than one beneficiary, you'll specify how much of the death benefit you want each to receive. You can also name contingent beneficiaries, who can only receive the death benefit if all primary beneficiaries are no longer alive when you pass away.
Death benefit types
Based on how you die, the type of death benefit you have could determine if it gets paid out or not. These are the most common death benefit types:
- All cause death benefit: Your policy will pay out no matter how you pass away, except in the rare case your cause of death is specifically excluded by the policy. This is the typical death benefit for standard life insurance policies.
- Accidental death benefit (ADB): An accidental death benefit policy only pays out to beneficiaries in the event of a car crash, drowning, or another accident that results in a fatality. Qualifying accidental causes of death will differ by insurer, so be sure to review your policy carefully.
- Accidental death & dismemberment (AD&D): Accidental death and dismemberment (AD&D) insurance policies can pay out for qualifying accidental fatalities as well as for accidents that cause qualifying major injuries such as the loss of a limb, paralysis, or blindness.
GRADED DEATH BENEFIT:
Sometimes death benefits are "graded." With a graded death benefit, your payout will be lower if you pass away within a set amount of time after purchasing the policy — usually the first couple years, depending on your state and policy. If you die after that time period, your beneficiaries are eligible to file a claim for the full death benefit. Also, the death benefit could still be paid in full for accidental deaths, as defined in your policy.
What is a death benefit rider?
Death benefit riders are additional death benefits or benefit-related features you might be able to add to your base life insurance policy for an additional cost. Death benefit riders allow you to customize your policy with additional financial protection for you and your loved ones if certain conditions are met.
ADB and AD&D riders
Accidental death benefit riders and AD&D riders can pay an additional amount — often double the policy's standard death benefit — in the event of a serious accident that meets the agreed requirements.
You have a base life insurance policy with a death benefit of $1 million, and you add on a $500,000 accidental death benefit rider. You keep up with your payments, and 10 years into your 20-year policy term, you pass away in a car accident. Assuming no exclusions apply to your cause of death, the total death benefit your beneficiaries could receive would equal $1.5 million.
Accelerated death benefit rider
An accelerated death benefit rider allows you to receive a cash advance against the policy's death benefit in the event of a qualifying terminal illness. Also known as a living benefit rider, this benefit is often used to pay for expenses while you need medical care.
If you're into extreme activities like skydiving or driving racecars, consider an accidental death benefit or ADB rider that doesn't exclude your specific hobbies or pursuits. Otherwise, depending on your insurer and policy, the death benefit might not be paid if you pass away while engaging in an excluded dangerous activity.
Even if your policy doesn't specifically mention it, you might qualify for an accelerated death benefit if you receive a diagnosis that specifies you'll pass away within 1–2 years. While proceeding with an accelerated death benefit would reduce the payout amount your beneficiaries receive, the funds might assist you with medical expenses like treatment and long-term care.
Get life insurance with the death benefit that's right for you
Get a quote for life insurance online by answering some questions and exploring your options for death benefit amounts, term lengths, and more. Or call 1-866-912-2477 to speak with a licensed Progressive Life by eFinancial representative who can help you find the right policy for you.