Death Benefit
The amount paid to designated beneficiaries upon the death of the insured person.
What is Death Benefit?
A death benefit is the sum of money that an insurance policy or retirement account pays to named beneficiaries when the insured person dies. In life insurance, the death benefit is the face amount of the policy — the core purpose of the coverage. In annuities and certain retirement accounts such as 401(k)s and IRAs, the death benefit refers to the remaining account value or a guaranteed minimum passed to heirs. Death benefits in life insurance are generally received income-tax-free by beneficiaries under IRS rules, making them a powerful tool for estate planning and income replacement.
Example
A 35-year-old purchases a $500,000 term life insurance policy. When they die 15 years later, the insurer pays the $500,000 death benefit to the named beneficiary — their spouse — income-tax-free. The proceeds replace 10 years of the deceased's income, covering mortgage payments and children's education costs.
Source: IRS — Life Insurance Proceeds