For people who are unfamiliar with life insurance, “death benefit” sounds like a strange term to use. Are there really benefits to death? What is a death benefit and why do they call it that?
The death benefit is what life insurance is all about - making sure that your loved ones have money to cover your final expenses and have an inheritance when you are gone. In life insurance terms, a death benefit is the cash payout your family will receive from your life insurance policy when you pass away. Some people prefer to call it inheritance money, or money for final expenses. Insurance carriers use the term death benefit because it is a cash benefit paid upon the insured’s death.
Some policies have an accelerated death benefit, which means that you can access the cash value of the insurance policy while you’re still living if you’re diagnosed with a terminal illness or if you require care in a nursing home. Not every policy comes with an accelerated death benefit option, so be sure to ask your life insurance agent if this coverage comes with your policy.
Every life insurance policy has a death benefit. However, some policies also have a living benefit. A living benefit means that you have access to the cash value of the policy while you’re still living. Index universal life insurance policies have this living benefit, which can provide cash completely free of income taxes. These policies are often used for tax-free retirement plans or education savings plans. If you’re interested in having access to money while you’re still alive and leaving money to your family, ask your life insurance agent about index universal life insurance or annuities.
Although “death benefit” may not be your favorite term, it’s still an important term for you to know. If you would like to learn more about death benefits or life insurance, check out our Death Benefits & Life Insurance page. If you’re interested in a policy with a living benefit, check out our Tax-Free Retirement page or our Child Savings Plan.
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