What you Need to Know About Death Benefits of Life Insurance

What you Need to Know About Life Insurance Death Benefits

If a policyholder dies due to accident during the policy term, term insurance provides a payout to beneficiaries. Many term insurance plans include or allow for an additional accidental death rider, boosting the death benefit insurance policy payout in case of accidental demise.
Death benefits insurance refers to the guaranteed or assured amount provided to the policyholder's nominees or beneficiaries in the event of their untimely demise. In India, all life insurance and death benefit policies offer death benefits if the policyholder passes away during the policy term. These benefits ensure the financial protection of the insured's family and are a key feature of every major life insurance product
When it comes to securing the future of your loved ones, life insurance is one of the most preferred options among Indians. In fact, around 328 million Indians had a life insurance policy in 2017, according to the IRDAI's Handbook on Indian Insurance Statistics.
This still leaves 75% of Indians without any life insurance! The main reason for this is the lack of awareness among the population regarding insurance for death benefits. Most people know that life insurance guarantees death benefit payment to the beneficiaries. But there is a lot more that you should know about death benefits.

Here are 5 things you must know about death benefits:

1. What is the Death Benefit?

Death benefits are the assured sum given to the beneficiaries in the event of the demise of the policy holder. The life insurance death benefit payout paid out within 30 days of the claim being made in most cases.

2. What is Covered?

The first thing to know is the cases in which the beneficiaries can get the sum assured as a death benefit in a life insurance policy. Here are some of the cases:

• In case death occurs due to natural causes or health issues covered in the best life insurance for death benefit plan.
• If death takes place because of an accident. However, life insurance policy death benefits offer an enhanced payout with an accidental death rider.
• In case the insured person commits suicide. But the death benefits are only given if the suicide takes place at least a year after the purchase of the policy.

3. What is Not Covered?

There are certain things that lead to the death benefits not being awarded to the beneficiary. Some of them are:

• If the policyholder dies due to suicide within the first year of buying the policy.
• In case death occurs due to hazardous activities or self-inflicted injuries.
• If the insured person dies because of any sexually transmitted disease, such as AIDS.
• If the policy holder dies because of drug or alcohol use.
• In case the death takes place due to a natural disaster, such as an earthquake or tsunami.

4. Taxation of Death Benefit

According to Section 10(10D) of the Income Tax Act, the assured sum plus the bonus received on maturity or death of the policy holder are completely free of tax, subject to certain conditions. You also get tax benefits for the premiums paid towards life insurance.

5. Cash Value

In case of whole life insurance, where the policy lasts an entire lifetime, a portion of the premiums paid is saved in a savings account as the cash value component. In case the life insurance policyholder dies, this cash value is given to the beneficiaries in addition to the death benefit under the death life insurance policy.