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What is a death benefit in life insurance?

April 30, 2024
Last revised: June 6, 2024

Your life insurance's death benefit is a gift to leave behind for your loved ones that can help cover expenses, replace your income or leave a legacy. Here's what you need to know.
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Key takeaways

  1. A death benefit is the amount of money within your life insurance contract that is paid out to your beneficiaries when you die.
  2. It's typically paid out tax-free and can be used however your beneficiaries see fit—whether that's for final expenses, income replacement or their own financial goals.
  3. While most people think of a death benefit payout as a lump sum, your beneficiaries may have other options like fixed or flexible payments for a set period, or potentially their lifetime.

For some, life insurance can be a powerful way to provide loved ones with a lasting legacy to cover their financial needs. After you pass away, your beneficiary receives a death benefit, which holds three key advantages. It can:

  • Help cover final expenses.
  • Replace your income.
  • Facilitate legacy planning by transferring wealth in a tax-efficient manner.

Understanding these practical benefits can empower you to make informed decisions about your financial future.

What is a death benefit & how does it work?

A life insurance death benefit is the amount your beneficiary will receive from the life insurance company when you pass away. It can be a financial safety net for your loved ones, providing essential support when they need it most. Typically, the death benefit is tax-free and can be used for anything, such as covering your final expenses, maintaining the household or fulfilling the goals you had together.

Determining how much of a death benefit you need should be based on your individual situation. It's something to discuss with your financial advisor. Together, you can review your financial situation, plans and budget to determine a sensible amount. The cost of your life insurance premium can depend on the size of your death benefit. Generally, the larger the death benefit, the more you'll pay in premiums.

What happens to the cash value of a life insurance contract?

In addition to a death benefit, some life insurance contracts offer a cash value component as a living benefit. It's typically offered as part of permanent coverage—like whole, universal or variable universal life insurance. This feature creates an account funded by a portion of your premiums and has the potential to grow over time. People use it for additional financial flexibility by withdrawing or borrowing from the cash value or using it to pay premiums for higher coverage.1

When you pass away, your named beneficiaries will receive the death benefit, less any withdrawals from the cash value taken during your lifetime or any outstanding loan balances at the time of death.

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Who receives your death benefit? Examples of beneficiaries

Choosing who receives the death benefit from a life insurance policy is a highly personal decision. Your beneficiary can be any person or legal entity and even can be multiple people and entities. If it's a person, some states require beneficiaries to be older than 18 or may demand that the funds for a minor beneficiary be put in a trust until they reach the age of majority. But other than that, there are few rules for who you can designate.

Here are some common examples of named beneficiaries for a death benefit:

  • Individuals. You could leave it to your spouse, partner, children, dependents, parents, relatives or friends. 
  • Charities and nonprofits. You might choose an organization that supports a cause that's important to you. 
  • Trusts. You may want to have the payout go to a legal entity that manages assets on someone's behalf. 
  • Businesses. If you run a business, you may want to leave a death benefit to your co-owners or partners. 

If you pass away without a beneficiary, the death benefit becomes part of your estate and will likely have to go through probate. From there, a judge will determine who gets the funds, which means you won't have a say.

Understanding death benefit payout options

Many life insurance contracts offer flexibility on how your beneficiaries can receive your death benefit. As you review the choices and the particular needs of your beneficiaries, you may want to work with an insurer who provides options. This can help ensure your financial gift is most impactful when the time comes.

Here are a few common payout choices and when they might be a good fit:

  • Lump sum. Your beneficiary receives the entire death benefit in a single payment. It offers immediate access to all the funds, which can help cover significant expenses or debts. 
  • Fixed period income. Periodic payments are made for a specific length of time. This may be helpful if you want to ensure that an ongoing financial obligation, like a mortgage payment, is met. 
  • Specified amount. Your beneficiaries receive fixed payments over several set intervals, such as smaller monthly payments. These can help cover fixed recurring expenses. 
  • Flexible. In this case, beneficiaries have control over the amount and timing of the death benefit payments. This approach offers the beneficiary a way to choose what best meets their changing needs. 
  • Life income. This provides guaranteed payments for the beneficiary's lifetime, protecting them from the risk of outliving the funds. A joint life income agreement can extend this to two people, such as a married couple. 

The right payout option depends on your beneficiary's needs and financial goals. Working with a financial advisor can help tailor a strategy that aligns with your vision and their future financial security.

What to know about claiming death benefits

When your beneficiaries need to claim your death benefit, the insurance company generally keeps the process straightforward, understanding this is a difficult time. However, there are a few key pieces of information to gather. The process typically involves these steps:

  • Find the contract. Ideally, the beneficiaries will have this information. If not, they may need to conduct a life insurance search through the National Association of Insurance Commissioners. 
  • Make a beneficiary claim statement. Contact the insurer to make a claim. A copy of the death certificate may be required. 
  • Review any additional paperwork. Depending on the contract, the beneficiaries may need to complete other paperwork. This may happen if an accelerated death benefit rider or a similar rider is on the coverage. 
  • Determine the payout option. Depending on the insurer, beneficiaries may be able to choose from several payout options. 

Every company has specific guidelines, so it may be helpful to familiarize yourself with the process beforehand and communicate it with your beneficiaries, along with where they can find the necessary information.

Get help designing your life insurance strategy

Life insurance can provide financial security to those you care about most. A death benefit can cover immediate and long-term financial needs, help safeguard against life's uncertainties and leave a lasting legacy.

Consider connecting with a Thrivent financial advisor to help ensure your life insurance death benefit aligns with your needs and goals. They'll work with you to create a plan that determines the right level of protection for your loved ones.

1 Loans and surrenders will decrease the death proceeds and the value available to pay insurance costs which may cause the contract to terminate without value. Surrenders may generate an income tax liability and charges may apply. A significant taxable event can occur if a contract terminates with outstanding debt. Loaned values may accumulate at a lower rate than unloaned values. Contact your tax advisor for further details.

Guarantees based on the financial strength and claims paying ability of Thrivent.

Thrivent and its financial professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

This webpage provides general life insurance information. It does not contain information specific to a Thrivent financial product. If you are looking for information specific to a Thrivent financial product or your existing life insurance contract, please log in and refer to your contract or prospectus document—or visit the life insurance product webpages.

If requested, a licensed insurance agent/producer may contact you and financial solutions, including insurance may be solicited.

Riders are optional and available for an additional cost.

Life insurance contracts have exclusions, limitations and terms under which the benefits may be reduced, or the contract may be discontinued. For costs and complete details of coverage, contact your licensed insurance agent/producer.