How Does A Death Benefit Payment Work?

Written By : BenaVest

March 23, 2021

The Quick Answer


A death benefit payment is paid out to a policy holder’s beneficiary after a few steps have been taken:


  • Know how much coverage you need to cover the expenses of all of your beneficiaries.
  • It is important for a policy holder to let all of their beneficiaries know that they are beneficiaries. 
  • Beneficiaries need to make a life insurance claim that needs to be approved by the policy holder’s insurance provider.
  • Take your time to decide what to do with your death benefit.


The key part to any life insurance plan is the death benefit payment. The death benefit payment is what allows a life insurance policy holder to leave behind a lump sum of cash for their dependants to use. 


It is important to know how the death benefit payment works and for your beneficiaries to understand how and where to collect it.


Don’t lose the death benefit payment


It is important for a policy holder to reach out to their loved ones whom they have named beneficiaries. Without doing so may make it very hard for their beneficiaries to locate the policy’s death benefit payout. 


Beneficiaries should also keep up to date with any changes that may occur to the policy holder’s plan. This prevents any confusion and difficulty in the event that the policy holder passes away.


Know the death benefit coverage amount


A good rule of thumb to follow when you are selecting policy coverage is to multiply your yearly income by 5 or 10. This way you will be giving your beneficiaries 5 to 10 years worth of your income for them to become stable and live their best lives.


Having all beneficiaries know the amount is a good idea for them to be able to plan out what to do with the death benefit payment. Budgeting for any expense that the main policy holder would pay for. Another good thing to speak about is the policy holders final wishes for their funeral.


Different death benefit payment options


There are multiple options when it comes to the way a death benefit payment can be paid out. 


Lump sum Most Life insurance providers default to this form of death benefit payment. This form of payment pays the full amount to the policy holder’s beneficiaries at once. This form is almost always non-taxable.


Specific income Beneficiaries can select to be paid over a period of time until the death benefit payment runs dry


Life income allows beneficiaries to receive insurance proceeds as guaranteed income for the remainder of their lives. 


Interest Income allows a beneficiary to receive interest from the death benefit periodically. The original benefit can be rolled over to another beneficiary when the first passes away.


Collecting your death benefit payment


For a beneficiary to receive the death benefit payment they must file a life insurance claim. First the beneficiary will need to get copies of the policy holder’s death certificates. These can be collected from your state’s vital records department. After that, a beneficiary can file the life insurance claim with the policy holder’s insurance provider.


When the claim is filed the insurance provider will need to approve the claim. A provider may deny a claim if the policy holder’s death was self-inflicted, happened too soon after the policy was made or if the form of death was not covered as stated in their policy.


Multiple beneficiaries will need to file separate claims.


Take time to decide what to do with your death benefit payment


Depending on how the death benefit was paid you may want to take careful consideration on how to use it. There is no rush to begin using a death benefit payment, you can just deposit it in a bank account and take your time to decide. You may also want to consider speaking with a financial advisor for help.